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1
PRELIMINARY DRAFT
OFFICIAL USE ONLY
THE ECONOMICS OF LONG-TERM GLOBAL CLIMATE CHANGE:
A PRELIMINARY ASSESSMENT
Report of an Interagency Task Force
Task Force on Economic Costs
Working Group on Global Change
Domestic Policy Council
Version of September 14, 1990
PRELIMINARY DRAFT
OFFICIAL USE ONLY
CONTENTS
List of Tables
V
Executive Summary
vi
I. Introduction
1
II. Background
2
A. Greenhouse Gas Emissions
2
1. Carbon Dioxide
3
2. Methane
6
3. Chlorofluorocarbons
7
4. Nitrous Oxide
9
B. Potential Climate Changes
10
1. Uncertainties
10
2. Projections
12
C. Policy Alternatives
13
III. Adaptation: Living with Global Warming
14
A. Climate and the Economy
15
B. Agriculture
16
1. Potential Yield Effects
16
2. Economic Implications
17
3. Adaptation
19
C. Sea-Level Changes
20
1. Possible Impacts
20
2. Adaptation
21
D. Human Health
23
1. Possible Impacts
23
2. Adaptation
24
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E. Other Possible Effects
24
1. Forestry
24
a. Possible Impacts
24
b. Adaptation
25
2. Fisheries
26
a. Possible Impacts
26
b. Adaptation
27
3. Water Resources
27
a. Possible Impacts
27
b. Adaptation
29
4. Biodiversity
29
a. Possible Impacts
29
b. Adaptation
29
IV. Mitigation: Limiting Greenhouse Gas Emissions
30
A. Background
30
1. Global Action
31
2. Differential Impacts
33
3. Incentives and Market Failures
36
B. Carbon Dioxide
39
1. Economy-Wide Analyses of Emissions Limitation Costs
40
a. Energy/Economic Balance
Analysis
41
b. Long-Term Energy and Energy-
Economic Policy Models
44
C. Short-Run Economic/Energy
Models
49
d. Energy Sector Impacts
49
2. Regulatory Adjustments
50
a. Reform of Electric Utility
Ratemaking
51
b. Utility Demand-Side
Management
52
C. Research and Information
53
d. Building and Appliance
Standards
53
e. Transportation
54
g. Agricultural Policy
55
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3. New Technologies
56
a. Electricity Generation
57
b. Energy End-Use Technologies
59
4. Forestation
60
a. Cost Analysis
60
b. Management
62
C. Methane
63
1. Animal Waste
63
2. Coal Mining
64
3. Landfills
65
4. Livestock
65
5. Rice
66
D. CFCs and Related Substances
66
E. Nitrous Oxide
67
Bibliography
69
Task Force Members
84
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LIST OF TABLES
Table
II.1 Main Greenhouse Gases
3
II.2 Carbon Dioxide Anthropogenic Emissions Share Projections 5
II.3 Methane Anthropogenic Emissions Share Projections
7
II.4 Chlorofluorocarbon (CFC-11 + CFC-12)
Emissions Share Projections
8
II.5 Nitrous Oxide Anthropogenic Emissions Share Projections
9
III.1 Estimated Economic Welfare Effects in 2050 of
Climate-Induced Agricultural Yield Changes
18
III.2 Protecting Densely Developed Shoreline
Areas from Sea-Level Rise
22
IV.1 Anthropogenic Greenhouse Gas Emissions
31
IV.2 Global Effects of Unilateral CO₂ Emissions
Reductions by the United States or the OECD
32
IV.3 OECD CO₂ Emissions Reductions Required to
Achieve Global Goals when Other Nations
Take Lesser Actions
33
IV.4 CO₂ Emissions Per Capita and Per Dollar
of GNP, 1986
35
V
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EXECUTIVE SUMMARY
This report is intended to provide an overview of economic issues and
research relevant to possible, long-term global climate change. It is
primarily a critical survey, not a statement of Administration or Department
policy
There are substantial gaps in current knowledge about the economics and
physical science of global climate change. In fact, almost all the
quantitative projections in this report, as well as many of the qualitative
assertions, are controversial. Projections of climate effects and costs in
the distant future are inherently less reliable than forecasts of climate and
policy costs in the short run.
The Task Force recommends that a coordinated economic research program
be undertaken, similar to that in the climate sciences, that would evaluate
the economic effects of possible future climate change and the benefits of
slowing such change, the costs and effectiveness of various adaptive and
emissions reduction measures, and the effects of such measures on U.S. and
world trade and capital flows.
The remainder of this Executive Summary provides a brief outline of our
main findings. Readers with an interest in a particular topic, such as the
impact of possible climate change on agriculture or estimates of the economy-
wide impacts of measures to limit carbon dioxide emissions, should note that
the main report, while lengthy, is structured to allow for a selective
reading.
BACKGROUND
Greenhouse Gas Emissions
Possible climate change is not a one-gas or one-nation problem. Carbon
dioxide, CFCs, methane, and nitrous oxide have accounted for about 87 percent
of the increase in radiative (greenhouse) forcing in the 1980s. Projections
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of future emissions of these gases are uncertain, and comparisons of the
effects of those emissions are not completely straightforward.
Carbon Dioxide: Given the projected expansion in fossil energy use
throughout the world, CO₂ is expected to account for a larger share of
increased radiative forcing in the future than in the past. The United States
now accounts for about 21 percent of total anthropogenic CO₂ emissions, but
that share is expected to shrink to around 12 percent by the middle of the
next century.
Methane: Emissions rates of major sources of CH4 are subject to
significant uncertainty. Over half of total anthropogenic emissions of
methane are produced by domestic animals (enteric fermentation) and rice
cultivation. Centrally-planned and developing nations account for the bulk of
these emissions.
CFCs: The United States and other developed nations now account for
well over half of emissions of CFCs and related gases, but the shares of
developing nations are expected to increase sharply as reductions and
phaseouts are implemented in accord with the Montreal Protocol.
Nitrous Oxide: Most N₂O emissions are associated with agricultural
activity and animal husbandry. Data on natural and anthropogenic sources of
nitrous oxide emissions are poor.
Scientific Background
While this report provides a brief discussion of the scientific
background to this issue, that discussion should not be interpreted as an
attempt to address or evaluate the scientific uncertainties surrounding
possible climate change.
Projections of future emissions of greenhouse gases are highly sensitive
to future rates of population growth, economic growth, and development of new
technologies for energy production and use. The inability to place narrow
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bounds on any of these factors necessarily places very wide bounds on any
forecast of future emissions.
Even if future emissions are assumed to be known, considerable
uncertainty attaches to the climate changes that would result from increased
atmospheric concentration of greenhouse gases. The effects of greenhouse
gases on global climate are forecast by climate models, a relatively new tool-
that may be reliable for the direction of temperature change but not for its
extent. Present climate models predict that a doubling of the concentration
of carbon dioxide relative to the preindustrial atmosphere--or its equivalent
in terms of a combination of greenhouse gases--would result in an eventual
global average warming of between 2 and 9 degrees Fahrenheit. If the
atmosphere begins to warm, a transfer of heat from the air to the oceans is
expected to slow the rate at which air temperature actually rises. This
effect could delay the full impact of any given increase in the concentration
of greenhouse gases on observed air temperature for decades or even centuries,
with wide variations by region.
Some models suggest a marked soil moisture decrease in mid-latitude
continental regions during summer. Global sea-level increases by 2050 of 25
to 40 centimeters (a recent estimate of the Intergovernmental Panel on Climate
Change, the IPCC) could occur if warming of 2° to 8° Fahrenheit occurred by
the middle of the next century. Regional impacts of possible climate change
are highly uncertain.
While the public discussion and most of the initial scientific work has
focused on the assessment of changes in mean global surface temperature, many
of the impacts of possible climate change considered in this report could be
more dependent on other climate variables. Examples of such variables include
changes in soil moisture, summer percipitation, precipitation or extreme
temperature by region, and in the number of days in a row when the temperature
exceeds a threshold values important to particular activities or natural
processes. A greater focus on these variables will be important in the effort
to refine current impact estimates and develop new ones.
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Policy Alternatives
Planned adaptation involves actions taken in recognition of anticipated
warming to deal with its effects. Unplanned adaptation involves short-run
responses to actual warming as it takes place. Mitigation policies are aimed
at reducing the rate of possible warming by reducing net emissions of
greenhouse gases. Mitigation policies must generally be implemented well
before adaptation policies. They must also be implemented on a global scale.
The important economic implications of differences in timing between
adaptation and mitigation costs can only be revealed by discounting.
Most studies of adaptation cost considered in this report provide
estimates for at most a small set of climate change scenarios. Differences in
methods and assumptions preclude addition of costs across studies. Costs are
almost always estimated relative to a no-change baseline. Such estimates
necessarily over-state the benefits of mitigation strategies, such as those
considered here, that, under the assumptions of current climate models, do not
stabilize atmospheric concentrations of greenhouse gasses and thus do not rule
out climate change entirely.
Given that the riskdanger of global warming is still unclearuncertain,
additional research is certainly called for. Beyond that, Uncertainty also
increases the attractiveness of relatively inexpensive, flexible policies that
can easily be reversed or expanded, and policies that can be justified for
reasons other than climate change should be highly valued.
ADAPTATION: LIVING WITH GLOBAL WARMING
Climate and the Economy
The direct economic effects of climate change would be concentrated
primarily in agriculture, forestry, and possibly fisheries, which currently
account for about 2 percent of U.S. Gross Domestic Product (GDP) and about 5
percent of world GDP. In addition, a rise in the sea level could inundate
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valuable dry land. Apart from agriculture and sea-level rise, little
quantitative research on climate impacts or adaptation costs has been done.
The indirect effects of climate change will create winners and losers
throughout the United States and global economies as demand shifts occur. For
example, demand for air conditioners and summertime electricity could rise,
while demand for space heating equipment and fuels and could fall. Tourism
might also be affected. The costs of adaptation would depend critically on
how rapidly warming occurs relative to the economic lifetimes of major
immobile assets.
Agriculture
Climate change could affect agricultural yields both positively and
negatively through variations in regional temperature, seasonality,
precipitation, and soil moisture. Estimates of these effects are very
uncertain. While increased CO₂ concentrations alone would likely have a
direct positive effect on efficiency of photosynthesis and water use, the
effects of higher temperatures could reduce yields. Estimates of the impact
of future global change on U.S. cereal crop yields range from an increase of
10 to 15 percent to a decrease of about the same magnitude.
Net economic effects on any country's agricultural sector depend on
global yields and consequent impacts on market prices and trade flows as well
as on regional yield effects. USDA analysis shows that a scenario involving
U.S. yield decreases of between 10 and 15 percent results in slightly
increased overall U.S. welfare once the effects of increased export prices are
factored into the analysis. This analysis suggests that climate-induced
changes in agriculture would not produce major positive or negative economic
effects by the middle of the next century. Yet, there could be significant
regional dislocations in crop production.
Sea-Level Changes
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The adverse effects of possible sea-level rise on coastal
infrastructure, recreation, and coastal ecology could be either large or
small, depending on the rate and magnitude of any sea-level rise and on the
extent of planned adaptation. While densely developed shoreline areas in the
United States could be protected against sea-level rises that might occur by
2050 for less than $10 billion (present value), significant net losses of
drylands and wetlands could occur.
Human Health
The impacts of a possible warming on human health are extremely
controversial, and the scope for planned adaptation is unclear. Some studies
show significant possible increases in heat-related deaths, while others argue
that cities with appreciably different climates show no climate-related
differences in health risk. Global warming would likely cause some vector-
borne tropical diseases to spread northward, but the magnitude of this problem
is unclear. On the other hand, there could be a decline in cold-related
deaths.
Other Potential Effects
Forestry: If significant warming occurs, changes in U.S. forests could
be apparent in 30 to 80 years. Significant changes in forest range are
possible. Changes in forest distribution and composition could have major
impacts on timber production, runoff from forests, and recreational
opportunities. Without human intervention, rapid warming could move natural
habitats of mid- and high-latitude forests poleward faster than natural rates
of forest migration could accommodate may make a northward forest migration
difficult. Today's forest management decisions could have long-term impacts
on the composition and location of forests.
Fisheries: Fishery resources are known to be sensitive to climate
variation. However, the qualitative effects of warming on fisheries are
highly uncertain, and no quantitative economic analysis has, to our knowledge,
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been attempted. Absent human intervention, ocean species are likely to be
less affected by any climate change than freshwater species, since oceans
would respond to atmospheric warming more slowly than smaller bodies of water.
Both the need and the opportunity for planned adaptation in the commercial
fishing sector appears to be limited.
Water Resources: In general, it is difficult to predict the impacts of
climate change on water resources with much confidence because of
uncertainties about regional precipitation. If significantly higher
temperatures occur, water supplies in California and the lower Great Lakes
could be reduced.
Biodiversity: The impacts of climate change on natural communities are
difficult to predict. Possible global warming could result in a decline in
biodiversity stemming from the loss or change of habitats that result in the
decline or loss of some animal and plant species.
MITIGATION: LIMITING GREENHOUSE GAS EMISSIONS
The costs of reducing carbon dioxide and CFC emissions are under active
study. Available estimates of CO₂ abatement costs remain preliminary and
controversial. Relatively little is known about the costs of reducing
emissions of other greenhouse gases. A revision of this section of the report
a year or two from now could rely on a much stronger research base
(particularly as regards CO₂) and might well have different policy
implications.
Background
Global Action & Differential Impacts: Global action is essential if
meaningful reductions in the expected growth of any of the greenhouse gases
are to be obtained without bringing economic growth to a halt. Even dramatic
unilateral cuts by the OECD member states would not be sufficient to achieve
widely-discussed global CO₂ goals unless most other countries participate
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fully in emissions reduction efforts. For example, even the total elimination
of OECD emissions over the next 15 years would be insufficient to obtain a 20
percent global emissions reduction by 2005 if the USSR and Eastern Europe only
stabilize emissions at their current levels and developing countries take no
action to curb CO₂ emissions growth. Global action would also be necessary to
control methane and nitrous oxide emissions, which result primarily from
agricultural and energy activities.
Differences in costs and benefits among nations may make it difficult to
obtain global agreement on specific goals and policies. For example,
countries planning to rely heavily on coal, which contains a relatively high
amount of carbon per unit of energy, may have greater concerns than other
nations regarding the impact of restrictions on CO₂ emissions than countries
planning to rely more on nuclear energy. on their level of oil and gas
imports and the consequent These issues will have important implications for
energy security and trade balances.
Incentives and Market Failures: An approach to limiting net
anthropogenic greenhouse emissions that encompasses all important greenhouse
gases and gas sinks as well as gas sources is preferable to one that considers
each source of greenhouse gases individually. Also, any set of nations should
be free to develop a joint strategy to meet their pooled ceilings, as long as
net global emissions are not thereby increased and existing treaty obligations
are not thereby violated. An approach incorporating these elements was
outlined in a U.S. concept paper introduced at the IPCC.
All analysts agree that some reductions in greenhouse gas emissions can
be obtained at low cost. The phaseout in CFCs recently agreed to at the June
1990 meeting of the parties to the Montreal Protocol falls into this
category Reductions in CFCs under the current provisions of the Montreal
Protocol and the GFC phaseout likely to be included in a revised Protocol this
year fall into this category. Current research has not been sufficient to
detail the extent of low-cost opportunities for limiting other greenhouse
gases There is disagreement as to the extent of low cost opportunities for
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limiting other greenhouse gases, but some such opportunities undoubtedly
exist.
Administration regulatory policy generally holds that primary reliance
should be on incentive based approaches including charges, user fees, and
tradable emissions rights. Command-and-control efficiency standards have
several significant disadvantages in comparison to incentive-based systems
such as charges, user fees, and tradable emissions rights- or related
approaches that address perceived market failures directly. When market
failures limit the power of such approaches, those failures can be addressed
directly. The costs of efficiency standards are often hidden rather than
explicit.
Carbon Dioxide
Economy-Wide Analyses of Emission Limitation Costs: Several studies of
carbon dioxide reduction costs using economy-wide models have recently been
completed or are now in progress. Existing papers (and work in progress that
we have been briefed on) use a variety of modeling approaches, consider
different policies, and employ different baseline emissions growth
assumptions. These differences have important effects on cost estimates. All
these results must be considered preliminary.
In general, work to date finds that the costs of stabilization or
reduction of CO₂ emissions by 2005 will be high--at least 1 percent of GNP per
year for widely discussed objectives, such as stabilizing CO₂ emissions at the
present level or securing and maintaining a 20 percent reduction from that
level. Some estimates suggest that achievement of such objectives would
involve significant reductions in long-term growth. During the 1973-85 oil
shock period, CO₂ emissions were constant but economic growth was slow. This
experience offers a useful reference for comparison of likely impacts of
policies to curtail fossil energy use sharply on output and productivity
growth.
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Some recent analyses consider the use of a charge on the carbon content
of fossil fuels to reduce CO2 emissions. This research generally concludes
that charges on the order of $100 per ton (which would amount to roughly a 180
percent increase in the delivered price of coal and a 70 percent increase in
the price of oil) would be needed to have a significant effect on emissions.
Much lower carbon charges may be of some value in the near term to compensate
for known external effects of energy use, to test the sensitivity of CO2
emissions to incentives, and to lay the foundations for higher future charges
if they are found necessary.
The aggregate economic effects of CO₂ emissions reduction policies would
not be felt evenly throughout the U.S. economy. The relative cost of energy
would increase substantially, increasing the relative price and decreasing the
consumption of energy intensive products. It is impossible to construct a
scenario for substantial CO₂ emissions reduction without a major adverse
impact on the coal industry. General equilibrium modeling suggests that an
effort to limit CO₂ emissions significantly would cause large changes in the
sectoral composition of the U.S. economy. Such sectoral changes, if gradual,
might occur without a drastic impact on the value of existing assets.
However, a policy that resulted in rapid sectoral changes could have a
significant impact on the value of assets in impacted industries and on the
value of immobile assets, such as residential housing, in impacted
communities.
Because the United States relies heavily on coal, the fossil fuel with
the highest amount of carbon per unit of energy, for electricity generation,
U.S. electricity rates would be likely to rise more than those in other
industrialized countries if concerted action were taken to curb CO2 emissions.
Unless energy-intensive U.S. industries were able to increase their energy
efficiency, they could be disadvantaged relative to major foreign competitors
who would be less affected by electricity rate increases.
Regulatory Adjustments: There are a number of reasons why total U.S.
investment in energy-efficiency may be suboptimal. Many analysts have called
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for a variety of regulatory initiatives to increase the efficiency of energy
use and, thereby, to reduce CO₂ emissions.
The elimination of electricity pricing distortions would be as likely to
yield increases in consumption and emissions as decreases. Many analysts have
called for reform of electric and gas utility regulation to give utilities
incentives to remove impediments to efficient investment in energy
conservation. While the desirability of regulatory changes of these sorts is
apparent, estimates of potential reductions in CO₂ emissions vary widely.
Energy-efficiency standards for buildings, appliances, and automobiles
represent another approach to limiting energy consumption, and thus CO2
emissions. However, the Administration generally favors addressing any
information problems, institutional rigidities, or market failures that may
exist can be addressed directly, rather than attempting to compensate for them
viarather than through efficiency standards that can impose significant hidden
costs on consumers and the economy at large.
A number of changes in agricultural programs that would have other
benefits can be expected to assist reducing greenhouse gas emissions. These
include reducing commodity price support levels, encouraging additional tree
planting, and conservation programs.
New Technologies: While new technologies offer significant CO₂ emissions
reduction potential after 2000, there is no simple "technological fix" to this
problem. A variety of technologies for generating electricity are in various
stages of development. The next generation of nuclear reactors, based on
simplified and standardized designs and passive safety features, may come into
use after 2000. Advanced energy use technology seems to have the potential to
contribute significantly to reducing CO₂ emissions, but estimates of the
extent of the contribution vary widely.
Increases in DOE's R&D budgets for end-user energy efficiency
improvements and for DOE programs that provide financial and technical
assistance to states, both of which have declined in recent years, would
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enhance conservation efforts. Most studies have found that the potential
gains from widespread use of available "best practice" technology are
significant, possibly up to 15 percent of current consumption.
Forestation: Reforestation is a (comparatively) short-term approach
that could generate a substantial decrease in net CO₂ emissions for at least
three to five decades. Cost estimates in one study of a global strategy
ranged from $4.29 to $8.03 per metric ton of carbon removed, while those in
another study for the United States ranged from $17.71 to $102.63 per metric
ton depending on program size. The net ecological and recreational benefits
of forestation would depend on the type of forest planted and the current use
of the land. The efficacy of forestation as a carbon management tool depends
importantly on how the stock of accumulated carbon in mature forests is
managed, but the costs and carbon removal potential of alternative management
strategies have not been systematically analyzed.
Methane
Because the developed countries account for only about 25 percent of
anthropogenic methane emissions, significant, cost-effective reductions in CH4
emissions will require global action. Feasible reductions in the areas of
animal waste, sizes of livestock herds, coal mining, natural gas production,
transmission, and distribution, landfills, and livestock and rice production
add up to more than enough to stabilize atmospheric CH4 concentrations. While
a number of approaches to controlling these emissions are available, no
systematic policy design or costing analysis has been performed.
Chlorofluorocarbons (CFCs)
The Montreal Protocol, which calls for a reduction in GFG emissions has
been ratified by nations that account for over 90 percent of global
consumption. The Protocol was renegotiated in June 1990 and will almost
certainly include and now provides for a phaseout of all CFCs by 2000 for
applications where safe substitutes are available. With widespread
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participation, this phaseout wouldwill significantly reduce the increase in
radiative forcing attributable to greenhouse gas emissions during the next
century. The costs of eliminating the use of CFCs will be approximately $3
billion (present value) over the next 10 years.
Nitrous Oxide
No systematic attention seems to have been devoted to the design or cost
of policies to reduce N2O emissions from fertilizer use or other sources, in
part because the relevant science base is weak. The relationship of N2O
emissions to energy production and use have been questioned by recent research
findings. Resolution of uncertainty in this area is a high priority.
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I. INTRODUCTION
Work on this report began in the fall of 1989, when an interagency task force
was instructed to "identify, review, and inventory" work on the economics of
climate change in order to inform policy discussions. A preliminary report
was presented in March, 1990. The present document is an updated version of
that report. The charge of this Task Force was stated in a memorandum of
October 23, 1989, from Allan Bromley to Michael Boskin as follows:
As you know, rational models of the economic cost of either
action or inaction, are conspicuously missing from the public and
international debate on the subject. Economic consequences must
be understood before sound policy can be developed and
economically and socially acceptable actions taken. We simply
cannot proceed without that understanding.
I would ask that your Task Force on Economics include broad
interagency representation and identify, review, and inventory
similar work being done elsewhere at universities, think tanks,
and by your counterparts in other industrialized nations. I would
ask you to produce at least a preliminary report in three months.
The members of this Task Force, who are listed at the end of this report, were
encouraged to draw on the full range of resources within their agencies. The
Bibliography at the end of this document provides a fairly complete but not
exhaustive inventory of work that bears on the economics of global change. It
draws on a wide range of sources. (In particular, unpublished economic
studies that have been reviewed by CEA were included.)
Task Force members agreed on the outline of this report and took
responsibility for first drafts of individual sections. Drafts of the report
were prepared by CEA on the basis of agency submissions and were reviewed by
the Task Force.
Because this report was prepared with tight deadlines, it necessarily
embodies very little new research. It is intended to provide an overview of
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current knowledge and key facts and is not a statement of Administration or
Department policy.
This report should serve to indicate that economic analysis of global
change is in its infancy; few assertions about costs or benefits can be made
with confidence. The state of the literature, the diversity of views on the
Task Force, and our schedule combine to precludes any attempt to produce
anything like a comprehensive benefit-cost analysis. (But see Nordhaus
(1990a) for a crude but interesting attempt.) Moreover, almost all of
quantitative estimates regarding physical and economic effects in this report,
as well as many of the qualitative assertions, are controversial.
Section II provides background on greenhouse gas emissions and their
likely climatic effects and on available policy types. Section III considers
the costs of living with global change, assuming no substantial efforts to
reduce greenhouse gas emissions. Section IV considers costs of reducing those
emissions, though the available literature does not contain estimates of the
costs of policies that would, on the assumptions of current climate models,
prevent climate change altogether. The individual Sections are not entirely
compartmentalized, but can be read independently if necessary.
II. BACKGROUND
This section provides background material on current and projected future
greenhouse emissions and on scientific opinion regarding the effects of those
emissions on the global climate. The final subsection provides a brief,
general discussion of adaptation and mitigation strategies to serve as an
introduction to the analysis of these strategies in Sections III and IV,
respectively.
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A. Greenhouse Gas Emissions
Increases in the atmospheric concentrations of at least 25 trace gases
contribute directly or (via chemical reactions) indirectly to the retention of
solar radiation by the earth (radiative forcing). Five greenhouse gases,
described in Table II.1, have accounted for about 87 percent of the increase
in radiative forcing in the 1980s and about 92 percent of the increase over
the 1880-1980 period (Ramanathan, et al., 1985; Hansen, et al., 1988). These
gases are, accordingly, the focus of the rest of this subsection and of the
mitigation strategies considered in Section IV. The emissions projections for
these gases in Tables II.2-5 are based on the Rapidly Changing World scenario
in Lashof and Tirpak (1989); they should be treated as providing rough orders
of magnitude, not precise estimates.
Table II.1
Main Greenhouse Gases
Percentage Share
of Increased
Atmospheric
Forcing
Radiative Forcing
Lifetime
Index
Gas
in the 1980s
(years)
(molecular)
Carbon Dioxide (CO₂)
49
250
1
Methane (CH₄)
19
10
30
Chlorofluorocarbons
14
60 & 75
22,000 &
(CFC-11 & CFC-12)
25,000
Nitrous Oxide (N₂O)
5
100-175
200
Sources: Hansen, et al. (1988) ; Department of Energy; Wuebbles and Edmonds
(1988).
Comparisons of the effects of future emissions of various greenhouse
gases are not completely straightforward. Differences in atmospheric
lifetimes lead to different time patterns of effects, so that decisions
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regarding discounting may be important (Lashof and Ahuja, 1989). (Note also
the uncertainty attached to the lifetime of N₂O.) And, while the radiative
forcing effects of changes in atmospheric concentrations of any trace gas are
apparently easy to calculate, the effects of changes in emissions on
atmospheric concentrations depend both on pre-existing concentrations and on
various imperfectly understood geophysical feedbacks, which also affect
atmospheric lifetimes.
1. Carbon Dioxide. Measurements of CO₂ levels show atmospheric
concentrations increasing from somewhere between 250 and 295 parts per million
(ppm) at the beginning of the 19th century to 346 ppm in 1986. Good data are
available on fossil fuel CO₂ emissions and (the far smaller) emissions from
cement production; data on the impacts of land use changes (primarily tropical
deforestation) are fair to poor. It is important to keep in mind that natural
flows of carbon into and out of the atmosphere are roughly ten to twenty times
larger than the (anthropogenic) flows associated with human activity.
Table II.2 provides historic and projected anthropogenic emissions data
by region and by source assuming no mitigation. These projections are
uncertain because of uncertainties about future population and economic
growth, sectoral composition of GNP, and sector-specific energy efficiencies.
Nonetheless, it is important to note that because energy-related sources of
CO2 emissions are expected to grow comparatively rapidly, and CFCs are
expected to be controlled significantly, CO₂ is expected to account for a
larger share of increased radiative forcing in the future than in the past.
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Table II.2
Carbon Dioxide Anthropogenic Emissions Share Projections
Percentage Shares
Source
1985
2000
2015
2050
Countries
United States
21
19
16
12
Rest of OECD
22
19
16
12
USSR & Eastern Europe
22
22
19
18
Centrally Planned Asia
10
13
16
21
Other Developing
25
28
32
37
100
100
100
100
Sectors
Commercial Energy
86
87
89
92
Tropical Deforestation
12
11
9
6
Other
2
2
2
2
100
100
100
100
Total Scenario Emissions
5.99
8.05
10.27
16.95
(10⁹ tonnes Carbon)
Average Annual Growth Rate
1.6%
Source: USEPA (1989) Rapidly Changing World Scenario
The U.S. now accounts for about 21 percent of total anthropogenic CO₂
emissions, but that share is expected to shrink to around 12 percent by the
middle of the next century. Despite the attention paid to tropical
deforestation, most anthropogenic CO₂ emissions are and will be the result of
combustion of fossil fuels. The United States has comparatively high CO₂
emissions per capita from fossil fuel consumption and cement production, in
part because it makes relatively heavy use of coal. In the United States,
coal burned by electric utilities accounts for 31 percent of total fossil fuel
CO2 emissions; the entire utility sector accounts for 37 percent, and the
transportation and industrial sectors account for 29 and 21 percent,
respectively.
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2. Methane. Atmospheric concentrations of CH4 were relatively
constant prior to the middle of the last century at about 700 parts per
billion (ppb); by 1987 CH4 concentrations had increased to 1675 ppb.
Recently, atmospheric concentrations of methane have been increasing at an
observed rate of about 1.1 percent annually. The contributions of the
different sources of methane that together account for aggregate emissions
remain uncertain. Anthropogenic emissions of CH4 are thought to account for
roughly two-thirds of all emissions. Table II.3 contains estimates of
anthropogenic emissions; they should be treated as uncertain.
The United States now contributes about 12 percent of anthropogenic
emissions of CH4; this share is predicted to decline to about 8 percent. Over
half of total anthropogenic emissions of methane are produced by domestic
animals (enteric fermentation) and rice cultivation. The centrally-planned
and developing nations account for the bulk of these methane emissions.
Energy-related methane emissions occur in coal mining, and when natural gas is
gathered, transmitted, distributed or vented.
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Table II.3
Methane Anthropogenic Emissions Share Projections
Percentage Shares
Source
1985
2000
2015
2050
Countries
United States
12
11
9
8
Rest of OECD
13
12
12
10
USSR & Eastern Europe
13
14
14
15
Centrally Planned Asia
17
16
17
19
Other Developing
46
47
49
48
100
100
100
100
Sectors
Fuel Production
18
22
26
32
Enteric Fermentation
23
24
23
22
Rice Cultivation
34
31
29
24
Landfills
9
10
10
14
Tropical Deforestation
6
6
5
4
Other
9
7
7
5
100
100
100
100
Total Scenario Emissions
320.1
399.5
476.8
710.5
(10⁶ tonnes CH4)
Average Annual Growth Rate
1.2%
Source: USEPA (1989) Rapidly Changing World Scenario
3.
Chlorofluorocarbons.
CFCs are entirely man-made and were
discovered during the 20th century. The concentrations of CFC-11 and CFC-12
were 226 parts per trillion (ppt) and 392 ppt, respectively, in 1986 and have
been rising at 4 percent annually. Table II.4 gives projected regional
emissions of these two gases assuming implementation of the Montreal Protocol
(aimed at reducing stratospheric ozone depletion) as it existed prior to June
1990in its present form, with 100 percent participation by developed countries
and 75 percent participation elsewhere. (As Section IV.D. notes, it is likely
that the Protocol will be revised to call for a phaseout of CFCs by the year
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2000 for applications where there are safe substitutes. In June 1990 the
parties agreed to a total phaseout of CFCs by the year 2000 in place of the 50
percent emissions reduction reflected in Table II.4
Table II.4
Chlorofluorocarbon (CFC-11 + CFC-12) Emissions Share Projections
Assuming no Further Controls Beyond Original Montreal Protocol
Percentage Shares
Source
1985
2000
2015
2050
United States
24
18
17
12
Other Developed
41
24
24
21
USSR & Eastern Europe
16
14
14
13
0.2Kg Nations*
6
14
15
19
Other Developing
12
30
30
36
100
100
100
100
Total Scenario Emissions
642.1
837.8
755.1
828.5
(10³ tonnes CFC)
Average Annual Growth Rate
0.4%
Nations with CFC use between 0.1 and 0.2 kilograms per capita and likely
to reach the 0.3 kilogram per capita limit in the Montreal Protocol
prior to 1999.
Source: USEPA
Note that global emissions of CFC-11 and CFC-12 were projected to
increase under the terms of the Montreal Protocol as they existed prior to the
June 1990 revision. Emissions of related greenhouse gases (particularly CFC-
22 and Methyl Chloroform) arewere also projected to increase quite rapidly,
but the revised Protocol now covers some of these gases; for example, methyl
chloroform, which had earlier been expected to see increasing use, is now to
be phased out by 2005. Considering these related gases does not alter the
message of Table II.4: the United States and other developed nations now
account for well over half of emissions of CFCs and related gases, but, with
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no further controls beyond the present Montreal Protocol even under the
original terms of the Montreal Protocol, the shares of developing nations
arewould have been expected to increase sharply. The recent revisions to the
Protocol will reduce the emissions of signatory nations by a substantial
further amount. speed with which safe substitutes are identified and theThe
extent of developing country participation in the phaseout of CFCs is
uncertain and will significantly affect future shares and quantities of
emissions.
4. Nitrous Oxide. Atmospheric concentrations of N₂O averaged about
285 ppb from 1600 to 1800, began to rise slowly at the start of this century
and more rapidly after 1940, and are now around 310 ppb. Data on natural and
anthropogenic sources of N2O emissions are poor, and the data in Table II.5
should be considered as approximate at best. The Department of Energy
believes that N2O emissions associated with energy processes may be
overestimated by an order of magnitude.
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Table II.5
Nitrous Oxide Anthropogenic Emissions Share Projections
Percentage Shares
Source
1985
2000
2015
2050
Countries
United States
14
12
11
9
Rest of OECD
13
14
14
12
USSR & Eastern Europe
14
15
14
13
Centrally Planned Asia
13
16
14
15
Other Developing
46
47
47
52
100
100
100
100
Sectors
Coal Combustion
25
26
29
36
Fertilizer Use
38
43
44
41
Gain of Cultivated Land
10
8
8
6
Tropical Deforestation
13
11
10
9
Fuelwood & Ind. Biomass
5
4
3
2
Agricultural Wastes
10
8
7
6
100
100
100
100
Total Scenario Emissions
4.21
5.85
6.87
8.85
(10⁶ tonnes N₂O)
Average Annual Growth Rate
1.2%
Source: USEPA
As in the case of methane, most N2O emissions are associated with
agricultural activity and with developing nations. Increased fertilizer use
has both raised N2O emissions and dramatically increased food supplies in many
developing nations. The U.S. share of world N₂O emissions is only about 14
percent and is expected to fall below 10 percent by mid-century.
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B. Potential Climate Changes
Formulating a realistic and responsible outlook on possible climate
effects associated with increasing atmospheric greenhouse gas concentrations
requires providing answers to a sequence of increasingly complex questions.
1. Uncertainties. It is first necessary to project future emissions
of greenhouse gases. As noted above, such projections are inevitably quite
uncertain. Economics research has an important role to play in refining
emissions forecasts. It is then necessary to predict how much of the assumed
emissions will remain in the atmosphere after accounting for the effects of
natural processes. Typical tentative scenarios, like those underlying the
emission share projections in tables II.2 to II.5, assume that emissions will
be sufficient to result in the radiative equivalent of a doubling of
atmospheric carbon dioxide (the combined effects of CO₂ and other trace gas
increases) between 2030 and 2070.
Once the greenhouse gas levels in the atmosphere are projected, the next
step is to project associated changes in heating of the earth system as a
whole. Such projections are highly sensitive to the treatment of feedback
mechanisms that can either reduce or amplify the effects of a greenhouse gas
buildup. Potentially important positive and negative feedbacks which have not
been adequately modeledare not fully understood are an important additional
source of uncertainty in projections of earth system warming. An increase in
radiative forcing by greenhouse gases does not necessarily imply a significant
warming of the planet. For instance, it has been argued that a strong
negative cloud feedback mechanism could counter the effects of greenhouse gas
buildup. In this case little net warming of the system would take place. A
recent study found that using a different representation of clouds in a
climate model reduces the predicted global warming by a factor of two to
three. However, scientists have identified other possible feedback mechanisms
that would make the warming problem worse than predicted. The best climate
models available today indicate that increased greenhouse gas concentrations
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will lead to some warming of the overall earth system. Because potentially
important positive and negative feedbacks which have not been adequately
modeled are known to exist, the questions of whether a systematic warming will
take place, and its magnitude, must still be considered as open.
The next question is more subtle and complex: to what extent will a
warming of the earth system be manifested in actual surface temperature
changeat what rate is the observed mean global surface temperature likely to
change? The role of the ocean as a heat sink illustrates this issue well.
Recent computations with one of the world's leading coupled ocean/atmosphere
models indicate that a one percent per year carbon dioxide buildup (doubling
by 2040; redoubling by 2120) would produce a warming of 3.8°F at the equator
by 2050, increasing to around 7.2°F at high Northern latitudes. But in this
computation, the Southern latitudes hardly warm at all because the high
latitude southern ocean absorbs virtually all the heat from greenhouse warming
(ocean temperatures increase slightly). Under this model, the earth system
would clearly warm, but air temperatures would scarcely be affected in the
Southern Hemisphere. The particular configuration of the ocean, atmosphere
and land surface in the Southern Hemisphere is responsible for this outcome.
More generally, observed increases in air temperatures will lag behind
equilibrium temperature increases (those that would eventually occur with
given atmospheric concentrations of greenhouse gases) for decades or even
centuries.
While considerable advances have been made in climate models, model
simulations of global warming are not consistent with the historical record
itself the subject of considerable debate. The available models predict an
increase in global surface temperature with increasing greenhouse gases, but
analyses of land and sea surface temperature changes over the past century
generally fail to detect such a pattern. On the other hand, our ignorance is
a two edged sword. Some scientists view increased risk of catastrophic
climate changes such as a sudden shift in the ocean currents that now warm
Western Europe that might be produced by geophysical processes we do not
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understand well as a major adverse consequence of increasing atmospheric
concentrations of greenhouse gases.
2. Projections. Because of these multiple, compounding
uncertainties, quantitative model projections of greenhouse gas warming must
be considered speculative andare subject to change as understanding
progresses. All current climate models predict that doubling the
concentration of CO₂ relative to the preindustrial atmosphere would result in
an eventual global average warming. Present quantitative predictions for
actual (realized) average warming by 2050 vary over the range 2°F-8°F. (The
low (high) end of this range corresponds roughly to the annual average
difference between Washington and Sacramento (Dallas). ) However, some recent
results from models using specifications of cloud behavior believed to be more
realistic have reduced equilibrium warming projections by half. Modelers
generally agree that seasonality will decrease, with winter temperatures
rising more than summer ones.
Possible changes in worldwide sea level are also subject to considerable
uncertainty. Warming could raise sea level by thermal expansion of the upper
layers of the ocean and by the melting of land-based ice. However, recent
measurements have found that Greenland and Antarctic ice cover is currently
increasing, not melting away. An American Geophysical Union panel recently
suggested a range of global sea-level increases by 2050 of between 10 and 70
centimeters. The present consensus within the science group of the
Intergovernmental Panel on Climate Change (IPCC) is that a warming within the
range projected by climate models might be accompanied by a global sea-level
rise of between 25 and 40 centimeters by 2050.
While the public discussion and most of the initial scientific work has
focused on the assessment of changes in mean global surface temperature, many
of the economic impacts considered in this report could be more dependent on
other climate variables. Examples of such variables include changes in soil
moisture, summer percipitation, precipitation or extreme temperature by
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region, and in the number of days in a row when the temperature exceeds a
threshold values important to particular activities or natural processes.
There is general agreement among climate modelers that, while precipitation
would increase globally in a global warming scenario, regional patterns of
precipitation would probably change, leaving some areas considerably wetter or
drier. Translating these precipitation changes into changes in soil moisture
is yet another question, since soil moisture is a function of soil and
vegetation characteristics as well as precipitation, temperature, and
humidity. Differences in soil moisture and temperature could also affect
soil's capacity to absorb greenhouse gases. Some models suggest a marked soil
moisture decrease in midlatitude continental regions during summer.
Coordination between climate modelers and experts in impact assessment is
required to assure that the efforts of the former are directed towards the
development of refined projections of those climate variables that are most
critical to the refinement of current impact estimates and the development of
new ones
The models differ substantially on regional scale projections,
compounding an already difficult problem of predicting regional temperature,
precipitation or soil moisture. There is general agreement among climate
modelers that, while precipitation would increase globally in a global warming
scenario, regional patterns of precipitation would probably change, leaving
some areas considerably wetter or drier. Translating these precipitation
changes into changes in soil moisture is yet another question, since soil
moisture is a function of soil and vegetation characteristies as well as
precipitation, temperature, and humidity. Differences in soil moisture and
temperature could also affect soil's capacity to absorb greenhouse gases.
Some models suggest a marked soil moisture decrease in midlatitude continental
regions during summer.
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C. Policy Alternatives
The next two sections of this report consider the two basic types of
policies available to deal with global change: adaptation and mitigation.
Adaptation policies, which seek to lower the costs of global warming,
come in two forms: planned and unplanned. Planned adaptation involves actions
taken in advance of anticipated warming; examples include development of heat-
resistant plant strains and decisions not to undertake new construction on
land that may be inundated by sea-level rise. Unplanned adaptation involves
reactions to actual warming, such as the use of more air conditioning. For
the most part, effective planned adaptation policies can be designed and
implemented at the local or national levels, while unplanned adaptation mainly
reflects decisions of individual firms and households. If global warming
occurs over time, adaptation would also be a continuing process.
Mitigation policies are aimed at reducing net emissions of greenhouse
gases. This can be done either by reducing gross emissions (by reducing the
use of CFCs or the burning of fossil fuels, for instance) or by increasing the
removal of greenhouse gases from the atmosphere by natural processes (by
reforestation, for instance).
Because some greenhouse gases have long atmospheric lifetimes, and
because any changes in climate mayare predicted to lag changes in net
emissions by many decades, mitigation policies must generally be implemented
well before adaptation policies. Using a 5-percent real discount rate, $100
billion spent on adaptation in 2050 is equivalent in terms of cost to $4.2
billion spent on mitigation today. (If an investment yields a 9-percent rate
of interest in dollar terms, but prices rise at 4 percent per year, the real
purchasing power of invested funds grows by 5 percent annually.) A 5-percent
real discount rate is used throughout this report, but the economic literature
contains arguments for both higher and lower rates.) Because the time scales
here are longer than in most issues, the important economic implications of
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differences in timing between adaptation and mitigation can only be revealed
by discounting.
The estimates of adaptation costs discussed in this report reflect a
wide range of assumptions regarding the magnitude and timing of possible
climate change as well as the period over which impacts are considered. These
disparities rule out meaningful summation of estimated impacts across studies.
In general, adaptation costs are estimated for either one or a small set of
assumed climate change scenarios, with the latter characterized in terms of
factors such as the change in mean temperature or mean sea level. Costs and
other impacts are almost always estimated relative to an implicit or explicit
baseline involving no climate change. Such estimates could in principle be
used to measure the benefits of entirely forestalling climate change, but they
necessarily overestimate the benefits of mitigation policies that fail to
stabilize atmospheric concentrations of greenhouse gasses at current levels
and thus (on the assumptions of current climate models) merely slow climate
change. And the available literature on mitigation costs does not consider
policies stringent enough to rule out climate change entirely.
Effective policy design must reflect the fact that there are great
uncertainties about future emissions, implied climate changes and their
effects, and the costs of reducing net emissions. It is of course important
to support scientific and economic research to close the many gaps in our
knowledge. But it is also important to recognize that policies adopted today
may vary significantly in how their attractiveness would change as uncertainty
is reduced in the future. The benefits and costs of proposed policy actions
should be evaluated under a broad range of outcomes that reflect the
significant uncertainties that pervade the global climate issue. Flexible
policies that can easily be reversed or expanded, and policies that can be
justified for reasons other than climate change should be highly valued. This
approach has been promoted by the United States in the international community
since Secretary Baker's February 1989 address to the Response Strategies
Working Group (RSWG) of the IPCC.
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III. ADAPTATION: LIVING WITH GLOBAL WARMING
This section considers the economic costs of global warming as described in
Section II.B., above. We begin with an overview of the general effects of
climate change on the economy. The rest of this section then considers the
specific effects and related planned adaptation policies on which most
attention has been focused, concentrating on the period between now and the
middle of the next century.
A. Climate and the Economy
Climate change can affect economic activity both directly, by altering
production possibilities, and indirectly, as adaptation to change and its
direct effects alters demands for and supplies of particular goods and
services. For example, warming would directly affect operators of ski areas
and indirectly affect manufacturers of ski equipment.
The direct economic effects of climate change would be concentrated
primarily in agriculture, forestry, and fisheries, which currently account for
about 2 percent of U.S. GDP and about 5 percent of world GDP. In addition, a
rise in the sea level could inundate valuable dry-land, and some have argued
for substantial adverse direct effects on human health. The effects are not
all negative since, for example, the construction industry would benefit
directly from reduced seasonality. Hydropower production would be affected by
changes in precipitation and runoff. The subsections that follow focus on the
most-discussed direct effects of global warming. Because of gaps in both
science and economics, we have comprehensive impact cost estimates only for
agriculture and comprehensive adaptation cost estimates only for sea-level
rise.
The indirect effects of climate change will create winners and losers
throughout the United States and global economies. If energy use is not
curbed to reduce greenhouse emissions, for instance, electric utilities and
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their suppliers could face significantly higher demandsbe important winners.
(The EPA estimates that a summer temperature increase of 6.7°F would require
an increase in electric generating capacity of between 25 and 50 percent of
current capacity.) Demand for air conditioners and heat exchangers would
rise, benefiting producers of these products. Producers and distributors of
space heating equipment, heating fuels, and winter clothing would likely face
decreased demand. Using existing econometric models, it is not generally
possible to translate qualitative assessments of this sort into quantitative
estimates.
The costs of adaptation would depend critically on how rapidly warming
occurs. Useful lives of plant and equipment tend to be substantially less
than 50 years, so that even a steady change in climate over the next century
would permit considerable change in the location and composition of economic
activity without major disruptions. If sudden changes were required, the
values of some immobile assets would drop sharply, and disruptions would
occur. Sudden population shifts, for instance, would lead to abandonment of
buildings, roads, and infrastructure in some areas along with the need for
major new investments in other areas.
B. Agriculture
Climate change could affect U.S. agricultural markets directly through
changed domestic yields and indirectly through changed world prices and trade
flows brought about by changed crop production abroad. While a number of
possible planned adaptation policies have been identified, their likely costs
and effects have not been fully analyzed.
1. Potential Yield Effects. Unfortunately, as noted in section
II.B, even given an assumed level of global warming, available predictions of
regional temperature, seasonality change, precipitation, and soil moisture
vary greatly, leading to highly uncertain agricultural projections. In
addition, agricultural effects would vary over time if climate continued to
change with gradual increases in atmospheric trace gas concentrations.
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Recent studies of the effects of climate changes on crop yields include
Smith and Tirpak (1989), Parry, et al. (1988a, 1988b), and Santer (1985).
These studies suggest that, in general, middle latitude yields would fall and
northern latitude yields would rise with a doubling of CO₂ levels and
consequent warming. Most results point to 10-20 percent declines in yields in
the Southern United States and slight increases in the Northern United States
These estimates do not incorporate important factors such as farm
management response with existing technology, the development of new crop
varieties better suited to new climate and ambient CO₂ conditions, and changes
in hydrology and in the distribution of agricultural pests and diseases. For
example, temperature increases may extend the geographic range of some crop
insect pests currently limited by temperatures (Smith and Tirpak, 1989).
Climatic warming may also increase the geographic distribution of livestock
diseases, even allowing some livestock diseases that are presently limited to
tropical countries to spread into the United States. The rate of many of
these changes would likely be small compared to current year to year
variability. The literature suggests that these factors are likely to be
important in determining the net effect of climate change on agriculture
(Hansen 1990; Rosenberg et al. 1989). Most crop modeling results point to 10
20 percent declines in yields in the Southern United States and slight
increases in the Northern United States. However, a A recent workshop
(National Climate Program Office, 1989) that discussed some of these factors
concluded that the net effect of trace gas doubling would be to increase
yields in all countries by 15 to 40 percent. On the other hand, some argue
that the workshop assumed an optimistic change scenario (3.8°F warming and a
15 percent increase in precipitation) and did not consider changes in pest
activity or possible summer droughts.
2. Economic Implications. Because national agricultural markets
are linked by international trade, the net effect of climate change on any
country will depend on how changes in regional climates affect global
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agriculture, and how these changes affect agricultural prices and trade flows.
Because the United States is a large net agricultural exporter, economic
losses associated with domestic declines in crop yields could be partially,
fully, or more than fully offset by producer gains from the higher
agricultural prices that would occur if world supply tightened. The same
mechanism would, of course, operate to offset the economic gains stemming from
yield increases that some believe could follow from increases in atmospheric
concentrations of CO₂.
Kane et al. (1989) used the primary international agricultural trade
model of USDA's Economic Research Service (Roningen, 1986) to estimate the
economic effects of changes in agricultural yield induced by climate change.
That analysis, which deals only with major grain and oilseed crops and does
not consider fruits, vegetables, poultry, or livestock, has been updated by
USDA for this report. Crop yield range estimates are a synthesis of recent
suggestions (Parry, et al. 1988a, 1988b; Santer, 1985; Smith and Tirpak, 1989;
United Nations, 1989). These estimates, summarized in Table III.1, are
largely illustrative because of the high degree of uncertainty concerning the
regional yield effects of climate change; note in particular that, in contrast
to the NCPO exercise discussed above, the U.S. yield impact is negative.
This analysis predicts a climate-induced increase in world corn and
soybean prices of about 10 percent, since most production of these crops
occurs in mid-latitude countries that may be adversely affected by climate
changes. The prices of all other primary agricultural commodities are
estimated to decline, though prices of oil and meal would rise.
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Table III.1
Estimated Economic Welfare Effects in 2050
of Climate-Induced Agricultural Yield Changes
Assumed Percentage
Estimated Net
Changes in Yields
Welfare Change
Country/Region
of Major Crops
(1986 $millions)
United States
-10% to -15%
+194
Canada
-10% to +5%
-167
European Community
-5% to -10%
-763
Northern Europe
+10% to +30%
-51
Japan
-5% to +15%
-1209
Australia
+10% to +15%
+66
China
+10%
+2882
USSR
+10% to +15%
+658
Brazil
No change
-47
Argentina
No change
+95
Pakistan
No change
-50
Thailand
No change
-33
Rest of the World
No change
-67
As Table III.1 shows, these estimated price changes would lead to small
increases in net U.S. and global welfare. Global welfare rises because
decreased production in some regions is more than offset by increases in
others. From the perspective of an individual country, large domestic yield
effects do not necessarily translate into large welfare effects; welfare
effects depend on prices determined in world markets and on flows of imports
and exports. Thus, even though yields are assumed to fall in the United
States, U.S. net welfare is estimated to increase by just under $200 million
in 2050. (These estimates do not consider adaptation costs, such as the
possible need to increase irrigated acreage.)
When these welfare effects are discounted to the present, they are seen
to be even less important than Table III.1 might suggest. At a 5-percent
annual rate of discount, the present discounted value of the estimated $1.51
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billion of net climate change benefits in world agriculture in 2050 is just
$81 million. Assuming linear growth in net benefits to 2050, the present
discounted value of all net benefits over the next 60 years is only $8.1
billion. To put these numbers in perspective, another application of the
model used here found that trade-distorting agricultural policies imposed
world-wide costs in 1986 alone of $31 billion.
Kane, et al. (1989) provide an informative sensitivity analysis. Only
when assumed yield reductions in the United States, Canada, and the European
Community (EC) are set at a very high level (greater than 40 percent), do
welfare effects become greater than 1 percent of GDP in the countries studied.
Thus, even with minimal planned adaptation, it appears that climate-induced
changes in agriculture should not produce major national-level economic
effects, positive or negative, by the middle of the next century. However, the
possibility of substantial variation in regional impacts cannot be ruled out.
3. Adaptation. U.S. agriculture can improve its resilience to
climate change through several adaptive strategies. These include increasing
irrigation and water use efficiency, developing and planting heat- and
drought-resistant crop varieties, enhancing soil and water retention through
use of low tillage and crop rotation practices, maintaining and enhancing the
genetic and technological diversity of agricultural systems, and improving
pest control techniques in anticipation of possible northward migration of
pests. Agricultural policies and programs, such as price support and acreage
control policies, should be reviewed to determine whether there exist
modifications that would help ensure timely and efficient adjustment to
possible climate change and that would contribute to trade and other policy
goals.
C. Sea-Level Changes
The adverse effects of possible sea-level rise on coastal
infrastructure, recreation, and coastal ecology could be either large or
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small. The severity of these effects will be determined by the magnitude and
rate of any sea-level rise and whether planned adaptation policies are
instituted. Unfortunately, only a few estimates of the costs of sea-level
rise or of adaptation policies are available.
1. Possible Impacts. A foot of sea-level rise can erode a typical
beach 100 to 300 feet; a 40-inch rise could translate into 900 feet of
erosion. The U.S. coastline, as that of most other industrial maritime
nations, has been extensively developed, with buildings often within 100 feet
of the sea. Even if currently densely developed areas were protected, losses
of dryland and coastal wetlands could be substantial if rates of rise were
rapid.
The loss of land by erosion and flooding due to accelerated sea-level
rise would translate into lost economic services. Gibbs (1984) estimated that
the present value (using a 3-percent discount rate and in 1980 dollars) of
lost economic services to Charleston, South Carolina, due to an 83 centimeter
rise in sea level could be $1.3 billion. However, planned adaptation could
reduce this loss by 65 percent to $0.4 billion. The amount of rise considered
in this analysis is more than double the high end of the most recent IPCC
estimate of likely sea-level rise by 2050 if significant warming occurs.
Other nations could also face losses from any sea-level rise. A one-
meter rise would inundate 7 percent of the land (occupied by 5 percent of the
population) in Bangladesh. Egypt would lose 12 percent of its habitable land,
affecting 14 percent of its population. The cost to each nation could exceed
2 percent of GDP. No estimates are available for the effects of the 25 to 40
centimeter sea-level rise considered most likely to occur by 2050 if
significant warming occurs.
Higher sea level would allow the saltfront of rivers to travel further
upstream than before and could also allow high salinity water to contaminate
groundwater. Hull and Titus (1986) found that with a one-meter rise in sea
level, reservoir capacity would have to be significantly increased to allow
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Philadelphia to continue withdrawing its drinking water from the Delaware
River. New York City, which withdraws water from the Delaware headwaters,
would also be affected. Less than $1 billion ($180 million to $908 million)
in present value capital outlays would be needed to compensate for this
possible reduction in water supply following from climate change. (The
present values are derived from estimates of $2.8 to $14 billion in
undiscounted 1986 dollars cited by EPA, assuming a 5 percent real discount
rate with all expenditures incurred in 2050.)
Without significant changes in its water management plans, Miami's
primary source of drinking water would be rendered unusable by salinity
increases if a one-meter rise in sea level occurred. Even with action, the
city would face reduced supply. Many other communities along the coast could
feel similar effects on their drinking water supplies if such a large sea-
level rise were to occur.
Storm surges would be likely to increase in height by the amount of sea-
level rise, making flood damages more frequent and severe. The size of flood
plains would likely increase. As a result, flood insurance costs would
probably go up, even with anticipatory policies.
3. Adaptation. It would not make economic sense to protect the
entire U.S. coastline against any substantial sea-level rise. If the sea
level were to rise gradually and predictably, substantial costs could be
avoided by discouraging additional development or replacement construction in
low-lying areas (perhaps in part by altering Federal flood insurance policy).
Particularly for less developed areas, discouraging development would allow
beaches to maintain their natural form, wetlands to migrate landward if rates
of sea-level rise are moderate, and flood and storm damage to be minimized.
It might, however, also be necessary to nourish recreational beaches
with sand and to use levee systems to protect some densely developed shoreline
areas. Estimates from Smith and Tirpak (1989) of the costs of these actions
through 2100 under alternative sea-level rise assumptions, along with the
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resulting loss of drylands and wetlands, are shown in Table III.2. (To put
the estimated dryland losses in perspective, the land area of Florida, which
would be particularly hard-hit by substantial sea-level rise, is about 54,000
mi².) As this table suggests, while densely developed shoreline areas could
be protected against likely sea-level rises at moderate (present value) cost,
significant losses of drylands and wetlands would occur.
Table III.2
Protecting Densely Developed Shoreline
Areas from Sea-Level Rise
Sea-Level Rise by 2100
Baseline*
50cm
100cm
200cm
Cumulative Costs to 2100
(1986 $billions)
Present Value**
0.6-0.8
3.9-5.3
9.0-13.7
20.8-38.1
Undiscounted Sum
4.8-6.2
32-43
73-111
169-309
Dryland Lost
1500-
2200-
4100-
6400-
(mi²)
4700
6100
9200
13,500
Current Wetland Lost
9-25
20-45
29-69
33-80
(percent)
*
Assumes current rate of sea-level rise, 12cm per century.
Assumes rate of spending rises 1 percent per year; uses 5 percent real
discount rate (continuous time).
D. Human Health
The impacts of global warming on human health are extremely
controversial, and the scope for planned adaptation is unclear.
1. Possible Impacts. The consensus view of a recent National
Research Council Workshop (1987, p. 19) was that " long-term climatic
changes in temperate latitudes are unlikely to have major health
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implications." [HHIS cite, quote] Others have noted that even though Atlanta's
climate in much warmer than New York's, there is no evidence of a climate-
induced difference in health risk.
On the other hand, a recent EPA report (Smith and Tirpak, 1989) finds
that warming could lead to increases in summertime morbidity and mortality in
the United States and the rest of the world. The report notes that any such
effects would be more pronounced in some regions than in others and that the
extent of acclimatization will play a large role in determining the effects of
any actual warming on health. The apparent absence of a climate-related
differences in health risk between northern and southern cities and the lesser
effect of current heat waves on mortality in Southern cities suggests that
human populations could acclimatize, especially if warming occurred over
several decades. The EPA report also notes that any warming would probably
reduce the number of weather-related deaths in winter months regardless of the
degree of acclimatization. The report concludes that it is not clear what the
net effect of these two offsetting trends may be, but one of the underlying
papers suggests that an overall increase in mortality is most likely.
Several vector-borne diseases, such as yellow fever, dengue fever, and
malaria, have the potential to spread northward if the climate warms. For
example, the vector of dengue fever breeds year-round in the United States
only in southern Florida, but it could move northward by several hundred
miles. The National Research Council Workshop (1987, p. 19) concluded that
the expansion of ranges of tropical disease vectors "would mostly affect
developing countries." Public health facilities in these nations could not
readily handle a dramatic increase in infectious disease with their current
resources. Their future ability to cope would depend largely on the rate of
improvement in living standards.
2. Adaptation. A national watch/warning system could be developed
(much like the systems that now warn of hurricanes and severe snowstorms) to
advise people when stressful weather conditions are imminent. Immunization
programs could be conducted in anticipation of the spread of certain vector-
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borne diseases into new areas. An improved health screening program could be
developed for immigrants. Finally, improved surveillance systems could
provide better data on the incidence and spread of infectious diseases.
E. Other Potential Effects
This subsection considers the implications of possible global warming
for forestry, fisheries, water resources, and biodiversity. While a variety
of possible adverse impacts have been identified in each of these areas,
little quantitative analysis has been attempted to date.
1. Forestry. Climate changes could have a significant impact on the
forestry industry. Unfortunately, no attempts have yet been made to quantify
the economic impact of such changes on producers or consumers. As in
agriculture, both yield and price effects are relevant.
a. Possible Impacts. If significant warming occurs, climate-induced
changes in U.S. forests could be apparent in 30 to 80 years. Forest ranges
could shrink considerably. The southern boundary of forests in the eastern
United States could move several hundred to one thousand kilometers north
under plausible global change scenarios. The potential northern range could
shift by as much as 600-700 km over the next century under these scenarios,
but slow rates of natural forest migration could limit the actual movement to
as little as 100 km. Northward migration may also be limited by less fertile
soils and decreased sunlight availability in the North. These projections do
not account for the favorable effects of CO₂ on water use efficiency and rates
of photosynthesis, reductions in freeze damage, or human intervention in the
forest migration process.
Changes in forest distribution and composition could have major impacts
on timber production, runoff from forests, and recreational opportunities.
Dieback along the southern limits of U.S. forests could result in productivity
declines in present dominant species of 46 to 100 percent under some plausible
scenarios. This estimate does not account for human intervention, such as
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species transplantation. The response of forests to climate change could also
modify runoff patterns and increase the potential for soil erosion.
Forests in other regions of the world would also be affected by
significant warming. A recent analysis for the IPCC (Government of Finland,
1989) suggests that boreal forests will become more productive if significant
warming occurs. Others believe that these same forests would be especially
hard hit, since most climate models suggest that any warming that occurs would
be greatest in high latitudes. While temperature increases may be smaller in
the tropics, tropical forests could be significantly affected by changes in
rainfall and land use pressures that may impede forest migration to more
suitable locations.
b. Adaptation. Today's forest management decisions could have long-term
impacts on the composition and location of forests. Planned adaptation
measures that could be considered include maintaining forest diversity and
extensiveness to enhance the ability of forests to respond to a range of
climatic conditions; developing and testing fast-growing and heat- and
drought-resistant species; preparing for dieback along southern boundaries
with plans for rapid harvesting and removal of dead trees and replacement with
better adapted species or non-forest systems; improving capabilities to
monitor for changes in forest growth and composition; and modifying pest and
fire control strategies to reflect likely changes in the frequency and nature
of these disturbances.
2. Fisheries. The effects of global warming on fisheries depend
primarily on changes in regional climates and ocean circulation and on the
pace at which they occur. The qualitative effects of warming on fisheries are
thus highly uncertain, and no quantitative economic analysis has, to our
knowledge, been attempted.
a. Possible Impacts. The impacts of any significant change in
temperature on fish populations would vary across species. Some would
experience increased habitat and associated expansion of range. Adaptation
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would be easier for fish in large bodies of water, including the oceans, than
for those constrained in small water bodies. Total productivity of fishing
grounds in the Great Lakes and oceans could increase. Under some scenarios,
phytoplankton and fishery productivity could increase in the Great Lakes by
1.6 to 2.7 fold, but there is the potential for a decrease in diversity due to
intensified species interactions. Climate change effects on the ocean are
particularly uncertain due to the complexities surrounding ocean circulation,
which until recently has not been explicitly considered in climate models,
heat uptake by the ocean, and future patterns of nutrient upwelling. One
study found that many Gulf Coast fish and shellfish would be unable to
tolerate much higher temperatures.
If there is rapid sea-level rise and resulting saltwater intrusion and
wetlands loss, changes in the distribution and size of many estuarine species
would be possible. Any losses of coastal wetlands would adversely affect
fish. Less salt-tolerant species would tend to migrate upstream towards
suitable habitat, ceding present habitats to more salt-tolerant species. In
lakes, streams, and estuaries, declines in water quality due to reduced
dissolved oxygen levels at the higher temperatures in some scenarios could
adversely affect many recreational species.
In the tropics, species dependent upon coral reefs could experience
significant adverse effects. Coral reef ecosystems could be vulnerable both
to increased thermal stress and to sea-level rise, if it were rapid enough to
inundate and kill the coral species.
b. Adaptation. Both the need and the opportunity for planned adaptation
appears to be limited. Commercial fishing occurs primarily in the ocean,
where effects of possible climate changes are especially uncertain. Changes
in species location and composition could require some adjustments, but
commercial fisheries now make similar adjustments in response to overfishing
and the natural movement of species. Travel time to specific commercial
fisheries may rise or fall, and changes in available species may raise or
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lower equipment cost. If equipment adjustments were made gradually, as
durable assets were replaced, their costs would be relatively small.
Management of water flow to lakes and streams could affect fish
populations in those water bodies. Restocking, which already plays an
important role in recreational fisheries, and new species introduction could
aid in adaption to climate change. Reducing water pollution could offset
adverse warming impacts on some species.
3. Water Resources. Even if an assumed rise in regional temperature
is taken as given, it is difficult to predict the impacts of climate change on
water basins with much confidence because of uncertainties about regional
precipitation. The quantitative estimates that follow assume a U.S.
temperature increase of 5.4°F to 9°F and an annual precipitation increase of 1
to 3 inches.
a. Possible Impacts. Such higher temperatures would likely reduce
snowpacks by shortening the snow season and causing more precipitation to fall
as rain. This could have a significant effect on the operation of such water
systems as the Central Valley Project and the State Water System in
California. With no change in infrastructure, earlier snowmelt would raise
flood probabilities in the winter. Management response to this would reduce
annual deliveries by 7 to 16 percent. Similar problems could be expected in
other Western water management systems.
Because of uncertainties about rainfall, it is hard to estimate the
direction of change in water supply in many regions. This is especially true
for rivers that are not fed by snowpacks, such as many rivers in the
Southeast. Higher temperatures could lower many lake and reservoir levels
through the effects of increased evaporation that was not offset by increased
rainfall. For example, the levels of the Great Lakes could fall by an average
of 0.5 to 2.5 meters, which could, among other things, reduce dilution
capacity. On the other side of the coin, the Great Lakes would benefit from a
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longer shipping season and a reduction in water pollution due to reduced use
of salt and other chemicals to cope with ice and snow.
If adverse developments occur, future costs would be incurred. For
example, the future costs of building additional reservoirs for the California
systems could be over $500 million (undiscounted) and the costs of dredging
harbors and making other adjustments could cost $270 to $540 million
(undiscounted) along the Illinois shoreline alone. (Note that a $500 million
outlay required in 2020 could be financed from the proceeds of an investment
of only $116 million today, assuming a 5 percent real rate of return on
invested funds.)
The implications for water quality are mixed. Dissolved oxygen levels
could be lower because oxygen is less soluble in higher temperature water and
because higher temperatures may increase primary aquatic productivity, which
increases the demand for oxygen. Summer stratification could be lengthened in
some lakes, which, combined with higher demand for oxygen, would reduce
dissolved oxygen levels and harm aquatic life. These factors could lead to
lower water quality in some basins. However, reduced use of chemicals to cope
with ice and snow would contribute to improved water quality in some northern
areas.
b. Adaptation. A number of measures could be taken to increase the
resiliency of water resources to climate change. Water conservation could be
promoted by reducing or eliminating subsidies for water use or allowing
trading of market rights. Water resource managers could be encouraged to
explore ways to transfer water between neighboring systems during droughts and
to consider plausible climate change in sizing new long-lived facilities. New
drought-resistant species could be developed to help cope with any water
shortages in agricultural areas.
4. Biodiversity. Other effects of possible global warming include a
possible decline in biodiversity stemming from the loss or change of habitats
that result in the decline or loss of some animal and plant species. While
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the relevant mechanisms can be described, their effects under different
climate change scenarios have not been estimated.
a. Possible Impacts. Changes in climate would harm some species but
benefit others. The ability of a natural community to adapt to changing
climatic conditions would depend on the rate and character of climate change,
the size of species ranges, the dispersal rates of individual species, and
whether or not barriers to migration are present. A species' ability to adapt
to changing climatic conditions would be heavily influenced by dependencies
upon or competition with other species within the ecosystem. For this reason,
the impacts of climate change on natural communities are difficult to predict.
In general, communities near the edge of a species range and arctic
communities would be at particular risk from significant climate change, as
would species that migrate slowly, that are already threatened or endangered,
that are specialized to small and isolated environments (such as montane and
alpine communities) or that have narrow habitat requirements. In some cases,
man-made barriers may limit migration: examples include mammals isolated in
refuges and prairie species blocked by expansive agriculture.
b. Adaptation. Existing programs that focus on the protection of
endangered species and preservation of genetic diversity could be adjusted if
the number of species at risk grows. Expansion of reserves and creation of
migratory pathways between areas of suitable habitat could enhance our ability
to preserve species. It may be useful to develop forest management practices
that allow product extraction while minimizing any reductions in an area's
future use as wildlife habitat. Areas that may become suitable future habitat
for threatened and endangered species, such as lowland areas adjacent to
current wetlands, could be identified and considered for protection.
IV. MITIGATION: LIMITING GREENHOUSE GAS EMISSIONS
As indicated in Section II, the analysis of mitigation strategies must
consider emissions of multiple gases arising from many different economic
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activities in many nations. The first subsection provides some basic
assumptions and principles about alternative policies for reducing greenhouse
emissions. Estimates of the costs of reducing emissions of each of the main
greenhouse gases are then discussed. The costs of reducing carbon dioxide and
chlorofluorocarbon emissions have received the most attention. Estimates of
carbon dioxide abatement costs remain preliminary and controversial.
Relatively little is known about the costs of reducing emissions of other
greenhouse gases. Major studies of mitigation policies area are underway
within the Federal government (in DOE, EPA, DOI, and OTA; a CBO study will
shortly be published), foreign governments (a major Japanese (MITI) study will
be completed by March 1), and in the private and non-profit sectors (work is
underway at EPRI, Harvard, MIT, and Stanford). A revision of this section
within a year or two from now could rely on a much deeper research base and
might have different policy implications.
A. Background
Two points are basic to any discussion of mitigation policies. First,
global action is essential if meaningful results are to be obtained without
bringing economic growth to a halt in some regions. Second, as in other
regulatory arenas, mitigation policies should minimize costs by relying to the
maximum possible extent on incentives and by providing flexibility.
1. Global Action. Table IV.1 summarizes some key data from Section
II. Anthropogenic emissions of methane (CH₄) and nitrous oxide (N₂O) are
mainly agricultural in origin and are mainly produced by the developing
nations; it is clear that global action, concentrating on agriculture, would
be necessary if a decision were taken to control CH4 and N2O emissions. While
current CFC emissions are mainly produced by OECD member states (which have
already pledged significant reductions and are likely to commit to a near
total phaseout), CFC emissions of other nations are predicted to rise rapidly
in the future if no additional controls are put in place. Finally, while the
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OECD nations are now the single largest source of anthropogenic carbon dioxide
(CO₂) emissions, emissions of other nations, which already account for more
than half of total emissions, are expected to increase rapidly absent serious
mitigation efforts. The OECD share of CO₂ emissions is projected to fall
below 25 percent by 2050. Taking account of expected future emissions
patterns, the need for global action is evident for these gases as well.
Table IV.1
Anthropogenic Greenhouse Gas Emissions
Percentage Share
Percentage Share of 1985 Emissions
of Radiative Forcing
OECD
USSR/East
CP Asia/
Gas
in the 1980s
Nations
Europe
Developing
CO₂
49
43
22
35
CH4
19
25
13
66
CFCs
14
65
16
18
N2O
5
27
14
59
Table IV.2 considers the effect on global CO₂ emissions in 2025 of the
unilateral adoption by the U.S. or by all OECD nations of four frequently-
discussed emission limitation targets: reduction of emissions growth by 50
percent, stabilizing emissions at 1985 levels by 2000, reducing emissions 20
percent below 1985 levels by 2005, and reducing emissions 50 percent below
1985 levels by 2025. Though the underlying global and regional emission
scenarios on which the calculation is based are necessarily uncertain, the
basic message of this table is fairly robust: even drastic reductions by all
OECD nations cannot prevent substantial increases in world CO₂ emissions by
2025. Unilateral actions by the U.S. have even smaller effects.
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Table IV.2
Global Effects of Unilateral CO₂ Emission
Reductions by the United States or the OECD
(Global Emissions in 1985=100)
Global CO₂ Emissions in 2025
if Policy Adopted by
Emissions Policy
U.S. Only
All OECD
Base Case (No intervention)
207
Reduce Growth by 50%
203
198
Stabilize by 2000
203
198
Reduce 20% by 2005
194
182
Reduce 50% by 2025
188
169
Note: Based on RCW scenario in Lashof and Tirpak (1989), using 1985
emissions as the baseline.
Table IV.3 considers the implications of meeting the emission policy
targets of Table IV.2 on a global basis if nations outside the OECD take
actions that are significant but less than proportional to the targets. The
table shows that without full participation by other nations, the OECD member
states would have to make dramatic or impossible cuts to meet widely-discussed
global CO₂ emissions goals.
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Table IV.3
OECD CO2 Emissions Reductions Required to Achieve Global Emission Goals
When Other Nations Take Lesser Actions
(Base case global emissions = 100 in 1985, 207 in 2025)
Action Assumed Taken by
Required
Global Goal
USSR/E. Europe Developing Nations
OECD Reduction
Cut Growth 50%
Growth cut 25%
None
98% by 2025
Growth cut 25%
Growth cut by 25%
33% by 2025
Stabilize by 2000
Growth cut 50%
Growth cut by 25%
41% by 2000
Growth cut 50%
Growth cut by 50%
29% by 2000
Cut 20% by 2005
Stabilize
None
Exceeds 100%
Stabilize
Stabilize
46% by 2005
Cut 50% by 2025
Cut 20% by 2025
None
Exceeds 100%
Cut 20% by 2025
Cut 20% by 2025
89% by 2025
Notes: Based on RCW scenario in Lashof and Tirpak (1989), using 1985
emissions as the baseline. Developing Nations include Centrally
Planned Asia.
2. Differential Impacts. While global action may be essential for
effective mitigation, differences in costs and benefits among nations may make
it difficult to obtain global agreement on specific policies. Table IV.4
shows that CO₂ emissions per capita and per dollar of GNP vary substantially.
Among those countries for which GNP estimates are available, higher-income
nations tend to have higher emissions per capita but lower emissions per
dollar of GNP. The USSR and Eastern European countries have particularly high
emissions. These variations make it easy to imagine an international replay
of the "clean states V. dirty states" debates that have marked Congressional
consideration of acid rain proposals. The stakes for oil-exporting nations
may be particularly high (Whalley and Wigle, 1989).
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The United States has a relatively high per capita CO₂ emissions rate
for two reasons. First, U.S. energy intensity (as measured by BTUs consumed
per constant dollar of GNP) is higher than that of most of our major
competitors. It is double that of Japan and 75 percent above than of Western
Europe. Second, coal provides about 27 percent of total U.S. energy
requirements. Among major industrial countries, this share is exceeded only
by the U.K. (32 percent) and West Germany (29 percent). The United States
also relies less heavily on nuclear power than do many other industrialized
countries.
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Table IV.4
CO2 Emissions Per Capita and Per Dollar of GNP, 1986
Per Capita
Per Dollar of GNP
(tonnes of Carbon
(kilograms of
Country
per capita)
Carbon per dollar)
United States
5.005
0.28
Canada
4.094
0.29
Japan
2.109
0.16
West Germany
3.066
0.25
Australia
3.853
0.32
France
1.794
0.17
United Kingdom
2.938
0.33
Italy
1.655
0.19
Spain
1.284
0.26
Poland
3.321
1.60
Mexico
0.909
0.49
South Africa
2.785
1.51
Brazil
0.379
0.21
China
0.527
1.76
India
0.187
0.64
East Germany
5.499
n.a.
Czechoslovakia
4.212
n.a.
USSR
3.593
n.a.
Romania
2.408
n.a.
Notes: From Department of Energy and World Bank Development Report, 1988.
Top set of countries listed from highest to lowest GNP per capita.
Includes emissions from fossil fuel combustion and cement production
only. "n.a." means GNP not available in the sources employed.
Because the United States relies heavily on coal, the fossil fuel with
the highest amount of carbon per unit of energy, for electricity generation,
U.S. electricity rates would be likely to rise more than those in other
industrialized countries if concerted action were taken--for example, by
imposing the same charge on the carbon content of fossil fuel to curb CO₂
emissions. Unless energy-intensive U.S. industries were able to greatly
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increase their energy efficiency, they could be disadvantaged relative to
major foreign competitors who would be less affected by electricity rate
increases.
In addition, because the United States has an abundance of coal
reserves, but only limited reserves of oil and gas, and very little
undeveloped economical hydroelectric potential, limits on coal use would
likely result in larger imports of oil and gas, which will have implications
for our balance of trade or energy security. All of this presents a marked
contrast to the 1973 and 1979 oil shocks, where our greater self-sufficiency
in energy provided an advantage relative to most other industrialized nations.
On the other hand, some argue that in the longer run, our more energy-
efficient competitors will may find it relatively harder to reduce emissions
in the future, since they have already undertaken cheap efficiency measures
that we have not.
Since adaptation costs are likely to vary substantially among nations,
so may interest in investing in mitigation. Existing models suggest greater
warming in high northern latitudes, and less warming in latitudes where most
developing nations are located. There is likely to be considerable regional
variation in agricultural effects. Nations differ substantially in their
vulnerability to sea-level rise. A higher share of GNP originates in climate-
sensitive activities in developing nations, but these nations generally lack
resources for adaptation. In short, while global action is essential to
significantly limit greenhouse emissions significantly. differences among
nations may make it difficult to find universally acceptable emissions targets
or ways of sharing the costs involved.
3. Incentives and Market Failures. Consistent with its approach
to domestic regulatory issues, this Administration feels that an approach to
limiting net anthropogenic greenhouse emissions that encompasses all important
greenhouse gases and gas sinks as well as gas sources is more promising than
one that considers each source of greenhouse gases individually. An
international limitation agreement based on the comprehensive approach, for
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example, would allow each nation to devise a strategy that reflects its own
situation regarding opportunities for emissions reduction and sink
enhancement. The Administration also feels that any set of nations should be
free at any time to develop a joint strategy to meet their pooled ceilings, as
long as net global emissions are not thereby increased. An approach
incorporating these principles was outlined in a U.S. concept paper tabled
introduced at the IPCC.
Even if a comprehensive approach with provision for pooling were
accepted, opinions are divided on how individual nations- in particular the
United States--should set domestic policy to meet net emission limitation
targets. Administration regulatory policy generally holdsMost economists
argue that primary reliance should be placed on incentive-based approaches--
including charges, user fees, and tradable emissions rights. This view
follows from the presumption that households and firms generally respond
rationally to incentives, so that regulatory goals are met at least cost by
providing proper incentives and maximal flexibility to respond at all points
along the production-consumption chain.
A second school of thought tends nonetheless to favor the use of
efficiency standards and other command-and-control techniques. Adherents of
this school point to apparent widespread deviations from best practice in
energy use and to reports of large payoffs from utility conservation programs
as indicating market failure. They contend that government regulation can
reduce CO2 emissions, in particular, at low or even negative cost by helping
or forcing individuals to take actions that are, in fact, in their own self-
interest.
Market failures do not, of course, provide an automatic justification
for direct regulation. Market failures, where they exist, can be addressed
directly. For example, since utility profits under traditional State rate
regulation are often linked directly to the level of electricity sales, a
utility faced with capacity constraints would usually prefer to increase
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supply rather than reduce demand. Regulatory changes at the State level could
be made to place the alternatives of demand reduction and supply augmentation
on a more even footing. Public information programs, promotion of efficient
appliances by utilities, and changes in mortgage qualification rules to
reflect appliance operating costs are other steps that could be used to deal
with market failures directly.
The Administration's regulatory philosophy recognizes that Efficiency
standards and other command-and-control regulations have several significant
disadvantages relative to incentive-based systems or approaches that address
perceived market failures directly. First, the burden of meeting standards
cannot be reallocated across industries or across the different greenhouse
gases in private cost-saving transactions. Second, in the absence of price
increases for fossil fuels, standards can increase the demand for energy-using
services. Finally, standards reduce the range of products available to meet
diverse consumer needs.
The costs of efficiency standards are often hidden rather than explicit.
For example, a higher average fuel economy standard might be met by forcing
consumers to buy only the more fuel efficient and generally cheaper vehicles
in the existing product line, actually reducing their purchase and gasoline
costs. However, out-of-pocket costs do not reflect costs imposed on consumers
by denying them the option to purchase other valued attributes such as safety,
performance and spaciousness. Higher fuel efficiency without higher fuel
prices also lowers the per mile cost of driving, encouraging additional trips,
fuel consumption and emissions. Since fuel economy labels already provide
good information to auto purchasers, and there are few apparent institutional
rigidities in this market, the economic rationale for stringent vehicle
efficiency standards is doubtful at best.
More generally, assertions that efficiency improvements are cost saving
or nearly costless raise the classic question of why these improvements are
not automatically taking place. Such assertions must be examined to see if
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the claimed efficiency gains involve tradeoffs with other product attributes
that were excluded from the analysis.
Efficiency standards based on national average values may actually serve
to restrict the choices of only those consumers who face low energy prices or
have low usage rates (and thus energy consumption) for the product. Those
with high usage rates or those who face high energy prices would purchase high
efficiency products even in the absence of mandatory standards. Taking this
self-selection into consideration, an efficiency standard that appears to save
money on the national level may actually impose costs on many consumers.
Economic models populated by perfectly rational firms and households
participating in perfect markets that are always in equilibrium clearly do not
provide a fully realistic characterization of the U.S. economy. But the
alternative extreme assumption, of widespread private waste easily corrected
by regulation but untouchable by market incentives or direct correction of
market failures, seems at least as far off the mark. The question of where
truth lies between these extremes is ultimately empirical, and it cannot be
answered here.
It is important, however, to point out that essentially all analysts of
agree that some reductions in greenhouse gas emissions can be obtained at low
cost. Disagreements focus on how fast the marginal cost of abatement rises
and on how the initial, low-cost reductions can best be obtained.
B. Carbon Dioxide
Carbon Dioxide (CO₂) accounted for about 49 percent of the increase in
radiative forcing in the 1980s and is expected to account for a larger share
in the future. The Administration's acid rain proposals, by providing
incentives to conserve electricity, will reduce CO₂ emissions from electric
utilities by around 2 percent--and will thus reduce total U.S. fossil fuel CO₂
emissions by around 0.7 percent. The higher CAFE standards adopted last
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spring will be likely to slow the increase in CO₂ emissions from automobiles.
Below, we begin by considering the estimated costs of CO2 emissions
reductions produced by economy-wide models. These models generally assume
that markets work well, so that incentive-based approaches minimize the costs
of emission reduction. We then consider analyses of the ability of regulatory
initiatives to reduce emissions. These analyses tend to be sector-specific
and focus on market or policy failures. The final two subsections focus on
the potential of new technologies and of forestation policies.
1. Economy-Wide Analyses of Emissions Limitation Costs.
Several recent studies, and work now in progress on which we have been
briefed, attempt to estimate the costs of efficient reductions in CO₂
emissions levels, using three distinct economy-wide modeling frameworks.
Energy/economic balance analysis focuses on the long-term relationship between
energy use and output, without explicit consideration of substitution
possibilities within the energy sector or the economy as a whole. Energy
policy models also focus on the long run but explicitly incorporate
substitution possibilities among fuels and the responsiveness of overall
energy demand to changes in energy prices and income levels. These models
often incorporate a crude feedback from energy to GNP, but the main causality
runs from the economy to the energy sector rather than vice versa. Energy-
economic models, which exist in both short- and long-term variants, attempt to
incorporate a fuller two-way link between the energy sector and the economy at
large, but they tend to include less detailed treatment of energy production
and consumption. While all of these approaches have clear weaknesses that
point up the need for further research and the development of more
comprehensive models, each provides some useful information, and all are
considered here.
Costs are estimated in models of the latter two varieties by comparing
economies with and without emissions reductions. Assumptions about emissions
growth in the no-policy baseline case vary widely and contribute to the
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diversity of results obtained. Assumed annual growth rates in CO₂ emissions
through 2050 vary from 0.61 percent (Edmonds, et al., 1986) to 2.27 percent
(Edmonds and Reilly, 1983). Even small differences in baseline annual
emissions growth rates (BAEGRs) can have a major effect on levels of emissions
over the long time intervals considered in global climate analysis. For
example, an increase of average annual emissions growth from 0.6 percent to
1.6 percent translates into a 43 percent increase in annual emissions levels
by 2050. Higher BAEGRs translate into higher, sometimes much higher, costs of
meeting particular target emissions levels.
For high BAEGRs, even quite draconian policies do not significantly
shift the date at which atmospheric CO₂ concentrations double from
preindustrial values. For lower BAEGRs, policies to stabilize emissions
appear to be more feasible. The different scenarios evaluated in the models
considered below are best thought of as illustrative scenarios--possible sets
of internally consistent future developments--rather than as definitive
forecasts.
While the studies discussed below differ in many respects, and their
shortcomings point up the need for further economic research, they all suggest
that the costs of stabilization or reduction of CO₂ emissions will be high--at
least 1 percent of GNP per year for commonly discussed goals such as the
indefinite stabilization of emissions between 80 and 100 percent of present
levels. One percent of current world GNP is about $150 billion; if world GNP
grows at an average annual rate of 3 percent, the total cost to 2050
(discounted at 5 percent) of 1 percent of GNP per year would come to about
$5.2 trillion. If economic growth is significantly slowed, costs could be
much higher.
a. Energy/Economic Balance Analysis. Kaya (1989) and Kaya, et al.
(1989) work from the following identity:
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Growth rate of CO₂ emissions =
growth rate of CO₂ emissions per unit of energy use
+ growth rate of energy use per unit of output
+ growth rate of output
A -1.0 percent growth rate of energy use per unit of output is assumed, along
with a growth rate of CO₂ per unit of energy use of between -0.4 and -1.0
percent. The former estimate may be viewed as somewhat pessimistic,
especially if a substantial rise in energy prices occurs. The latter estimate
is rather optimistic given the likelihood of increasing reliance on coal and
coal-based synthetic fuels that are highly carbon intensive.
Under these assumptions, a CO₂ emissions growth rate of -1.0 percent,
which is necessary to implement a 20 percent cut in emissions by 2005, is
associated with world output growth of 0.4 to 1.0 percent per year. Over the
last several decades, output has grown at 4 to 5 percent annually, and
population has grown at a 2 percent rate. Thus, these calculations suggest a
drop in output growth of 3 to 4 percentage points per year, leading to an
almost certain decline in per capita income. The long-run effect on the world
economy of a drop in output growth of even a tenth of the size suggested by
Kaya's work would be staggering.
Even if CO₂ limitations reduced output growth by only 1 percentage point
(i.e., from 3 percent to 2 percent), the long run effect on the world economy
would be staggering. The cumulative cost from now to 2050 (using a 5 percent
discount rate) would be $107 trillion dollars just over 7 times world output
in 1987. This reduction in growth would depress output in 2050 by about 45
percent.
On the other hand, Fortunately, our experience following the 1973 and
1979 oil shocks indicates that the relationship between economic growth and
energy use may be less rigid than Kaya's framework suggests. Between 1973 and
1985, the price of energy rose by 47 percent relative to non-energy products
at the consumer level and by 80 percent at the industrial level. Partly as a
consequence, the ratio of energy use to real GNP fell by 2.4 percent annually
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in the United States and 1.9 percent annually in the OECD countries. CO2 per
unit of energy also fell during this period, as usage of natural gas and
nuclear power increased rapidly, and U.S. and OECD CO₂ emissions were
essentially constant between 1973 and 1985.
This was not a period of economic boom, however; growth rates of U.S.
output and productivity over the 1973-85 period, 2.3 percent and 1.0 percent
respectively, were far below the corresponding rates of 3.7 percent and 2.9
percent for the 1948-73 pre-shock period. While most of the slowdown in
growth can be attributed to other factors, higher energy prices played an
important role. The rise in energy prices led to a substitution of other
inputs for energy and a diversion of investment that might otherwise have been
used to increase labor productivity.
Moreover, part of the decline in the energy/GNP ratio during 1973-85
reflects the increased relative importance of the service sector. One cannot
count on comparable increases in the future, especially as the United States
moves from being a large net importer of manufactured products to a large net
exporter in order to balance its current account and repay international
borrowing.
While the use of natural gas could continue to expand in the near term,
the absence of nuclear projects in the pipeline and current strong public
resistance to this form of power in the United States suggest it will be
harder to substitute nuclear for fossil energy in the future than in the 1973-
85 period. On the other hand, many have argued that macroeconomic policies
and energy regulation contributed significantly to the poor economic
performance of that period, and one can hope that similar policies will not be
adopted in the future and that some of these mistakes could be avoided in the
future. Moreover, revenues from a carbon charge (discussed below) could be
used to lower other taxes, while much of the increased spending on oil in the
1973-85 period flowed abroad.
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Despite these caveats, the period of the oil shocks provides a useful
reference for consideration of the likely impact of CO₂ emission reduction
policies on output and productivity growth. Energy remains a major input to
the U.S. economy, and studies discussed below suggest that energy price
increases at least as large as those experienced between 1973 and 1985 would
be required to achieve widely-discussed targets for CO₂ emissions reduction.
On balance, there is no reason to believe that any attempt to reduce energy
use significantly today would be substantially less economically disruptive
than were the oil shocks of the 1970s.
b. Long-Term Energy and Energy-Economic Policy Models. These models
allow for explicit analysis of policies that raise the price of fossil fuels
to discourage their use. The most natural (and easily analyzed) policies of
this sort involve imposition of a carbon charge.
A carbon charge levied on the carbon content of primary fossil fuels at
their first sale or entry into the distribution system would provide an
administratively simple means of reflecting the social undesirability of
greenhouse emissions in fossil fuel prices. Because end users cannot
significantly alter the relationship between fuel carbon content and CO₂
emissions, and an economical carbon scrubbing technology is not anticipated in
the near future, there is no efficiency advantage in applying the charge to
end users. Sellers in long-term energy contracts (especially coal contracts)
should not be forced to absorb the charge to fulfill their existing contracts.
This problem can be avoided by imposing the charge on the buyer in the first
transaction. Depending on other nations' mitigation actions, coal destined
for export might be exempted from the charge, and a refundable credit for
petrochemical and other uses of fossil fuels that sequester verifiable amounts
of carbon could be considered. In principle, imports of electricity generated
from fossil fuels should pay a charge based on the carbon content of the input
fuel, though this could conflict with our free trade agreement with Canada.
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Unlike an ordinary tax, which distorts private decisions such as the
choice between work and leisure, an appropriate carbon charge can actually
improve resource allocation and raise welfare by closing the gap between the
private and social costs of carbon-emitting activities. A carbon charge would
affect decisions ranging from the choice among alternative technologies for
generating electricity, to the energy efficiency of cars, buildings, and
industrial equipment, to the demand for automobile travel and products made
from steel. Because a carbon charge provides incentives that affect decisions
at all points along the production-consumption chain and across all
industries, it automatically focuses on those activities where CO₂ emissions
reductions can be achieved at least cost. The least-cost property of charges
when markets work well is useful in placing a lower bound on the economic
implications of particular greenhouse gas emissions targets, even if other
tools would actually be used for implementation. A carbon charge does not, of
course, provide the full flexibility and efficiency of a comprehensive charge
system applied across all greenhouse gas sources and sinks.
Existing economy-wide studies generally imply that carbon charges on the
order of $100 per ton or more would be needed to have a significant long run
effect on carbon dioxide emissions. At current prices, and not allowing for
fuel market responses, a carbon charge of $100 per metric ton would increase
the average price of coal delivered to electric utilities by 178 percent, the
average price of natural gas by 49 percent, and the average price of oil by 70
percent. These impacts are comparable on average to the energy price
increases caused by the oil price shocks of the 1970s. Electricity rates
would immediately rise by up to 30 percent, 15 times the average increase that
would be produced by the Administration's controversial acid rain proposals.
Nordhaus (1990a) provides an explicit (albeit necessarily crude)
analysis of the costs and benefits of reductions in greenhouse gas emissions.
His highly uncertain point estimate of the future costs of warming, based on
selected EPA estimates of its effects on sea level, electricity demand, and
agricultural productivity is 0.25 percent of future GNP. Even this small
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impact is sufficient to justify low cost measures, such as significant
curtailment of CFCs and a small $3 per ton carbon charge. At the high end the
range of effects that is likely to contain the true effect (anywhere from a
benefit of 1.75 percent of GNP to a cost of 2.25 percent of GNP), a carbon
charge of as much as $30$40 per ton might be justifiable. Both of these
estimates are for a real discount rate 1 percent higher than the output growth
rate. The optimal taxes are higher (lower) at lower (higher) discount rates.
This analysis suggests that if carbon charges are found desirable in
principle, serious consideration should be given to using charges
substantially lower than those employed in the modeling exercises discussed
here. Once a carbon charge system is in place, the rate can be raised--or
lowered--as scientific and economic uncertainties are resolved in the future.
Manne and Richels (1989) simulate policies capable of stabilizing U.S.
CO2 emissions at their 1990 level through 2000 and then reducing them to 80
percent of this level by 2020. Their policy is a charge that begins at $29
per ton of carbon but rises sharply after the year 2000 before stabilizing at
$250 per ton by the middle of the century. Initially, the emissions limit is
met by fuel switching from coal to natural gas. Natural gas, which accounted
for 12 percent of electricity generation in 1985, accounts for 27 percent by
2010. The rapid run-up in charge rates after 2000 reflects the difficulty of
securing a 20 percent emissions reduction by 2020 in the face of exhaustion of
natural gas supplies and prior to the large scale deployment of advanced
technology alternatives to fossil fuels. Costs build to about 5 percent of
GNP by 2030 and maintain that value through 2100.
However, the costs of meeting the emissions target are significantly
reduced if the BAEGR turns out to be lower than the 1.7 percent they assume.
For example, a 1 percent autonomous (not linked to prices) improvement in
energy efficiency reduces losses to about 3 percent of GNP. The further
addition of an optimistic forecast of future energy technology lowers
estimated losses to a little more than 1 percent of GNP.
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The autonomous rate of increase in energy efficiency (AEEI), and the cost
difference between carbon-producing technologies and carbon-free replacements
are key inputs to the model. Hogan and Jorgenson (1990) argue that, because
technological advance as a whole has been energy-using rather than energy
saving, the AEEI is negative. Williams (1989, 1990) argues that the
availability of low-cost conservation and alternative energy technologies
implies both a higher AEEI and a much lower required carbon tax than that
assumed by Manne and Richels. As noted in Section IV.A.3, assertions that
available efficiency improvements are cost saving or nearly costless raise the
classic question of why these improvements are not automatically taking place.
The availability of low carbon technologies that were truly attractive to
consumers would, of course, significantly lower carbon emissions in the
absence of any policy action.
Another Manne and Richels paper (1990) applies the same basic framework
on a world scale, The policy simulation holds emissions beyond 2020 to 80
percent of 1990 levels in the OECD countries, Eastern Europe, and the Soviet
Union. Emissions in China and the developing world are stablized at twice the
present level. Autonomous efficiency increases in the OECD and China are set
to 0.5 percent and 1.0 percent respectively prior to 2050; worldwide
convergence to a 0.5 percent annual AEEI rate after 2050 is assumed. GDP
losses from the carbon constraint over the 2030 to 2100 period average 3
percent for the U.S. and 1 to 2 percent for other OECD countries. Eastern
Europe and the Soviet Union losses are slightly higher than those for the U.S.
GDP losses for the developing countires are largest, with China facing GDP
losses ranging from 9 to 11 percent between 2040 and 2100.
In an early paper, Edmonds and Reilly (1983) use an energy policy model
to consider the application of carbon charges in the United States alone and
to the entire world. These cases may be viewed as bracketing the outcomes
under an international agreement with special provisions for developing
countries and/or incomplete participation. The application of stiff carbon
fees throughout the world (100 percent change on coal, 78 percent on oil, 56
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percent for natural gas, and 115 percent for synfuels, roughly reflecting the
different carbon content of the different fuels) beginning in 1985 is found to
reduce global carbon emissions by 40 percent from base case levels by 2050.
However, given the high BAEGR employed (2.27 percent) global CO₂ emissions are
still three times the current level in 2050. A fee program in the United
States alone is much less effective, reducing 2050 global emissions by only 15
percent. Carbon charges in the United States alone depress the world market
prices of fossil fuels, leading to an increase in fossil energy use overseas
that significantly offsets the greenhouse benefits of reduced energy demand
and fuel switching in the United States.
In subsequent work, Edmonds (1989), Reilly and Edmonds (1985), Reilly, et
al. (1987), and others have used the same model with a lower BAEGR. Cline
(1989) finds that a somewhat higher global charge (approximately $100 per ton
of carbon) than that considered in the original Edmonds-Reilly paper is
sufficient to stabilize CO₂ emissions at or slightly below current levels in
the second half of the 21st century with a 0.95 percent world BAEGR. The
Congressional Budget Office (CBO) analysis of carbon charges (Montgomery,
1989, in progress) presents runs with a 1.2 percent U.S. BAEGR and a 2.0
percent world BAEGR. In these runs, a global $100 per ton carbon charge cuts
a baseline tripling of CO2 emissions by 2050 to a doubling. The difference
between these results and Cline's highlights the importance of the BAEGR in
driving the results regarding effectiveness of taxes in meeting target
emissions.
Some general observations apply to all runs of this model. First, while
some substitution among primary energy sources does occur, the primary
mechanism for cutting emissions is a reduction in overall energy use. Second,
the burden of greenhouse policy always falls heavily on the coal sector and on
net exporters of fossil fuels (and, by implication, energy-intensive
products). For example, in Cline's runs, coal use increases between 2000 and
2050 in the baseline case but falls by more than 2/3 when the global charge is
applied. Third, while global policies are clearly preferable in CO₂
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limitation terms, they are likely to put much more pressure on the world
savings-investment balance. Crowding out of other productive investment
becomes a larger problem as more countries attempt to increase investment in
energy efficiency at the same time. Indeed, for developing countries with
limited access to capital markets, concern over crowding out could pose a
serious barrier to any participation in CO₂ limitation efforts. Finally, the
Edmonds-Reilly model is not useful for estimating the effects of greenhouse
policy on GNP, since the role of energy in the production function and
tradeoffs between energy and nonenergy investment are not explicitly modeled.
Work in progress at the CBO will also report on runs of the Jorgensen
general equilibrium model with a unilateral $100 per ton carbon charge imposed
in 2000 (Montgomery, 1989). This policy is estimated to reduce real GNP by 1
percent. The Jorgensen model essentially involves a "de novo" solution that
does not take into account constraints imposed by current fixed assets and
labor force skills on the composition of the economy 10 years from now. The
Jorgensen model solution entails radical shifts in the composition of
electricity supply and large interindustry shifts in the composition of the
economy. Sectors such as textiles, agriculture, and leather grow, while
chemicals, mining, and plastics decline.
Because Jorgensen's model describes an economy in 2000 that is very
different from today's economy and because adjustments involve costs, such
radical shifts are unlikely to occur over this time interval. Such shifts
would necessarily entail significant dislocations. Because of these
adjustment costs, actual structural changes and thus actual emissions
reductions, would likely be lower than these results indicate. Alternatively,
much higher economic costs, including significant labor force dislocations and
sharp reductions in the value of existing immobile assets, would be required
to achieve the level of emissions reduction obtained in the Jorgensen model
solution.
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The sectoral shifts envisioned by Jorgensen would nonetheless occur over
time if significant policies to discourage CO₂ emissions were adopted. These
large distributional effects are thus a reminder that the aggregate economic
effects of CO₂ emissions reduction policies, variously estimated at between 1
and 5 percent of GNP for carbon charges in the $100 per ton range, would not
be felt evenly throughout the economy.
C. Short-Run Economic/Energy Models. A recent detailed analysis
considered the cost to Australia of achieving a 20 percent reduction in CO2
emissions by 2005 (Marks, et al., 1989). In some respects, such as the
significant use of coal in electricity generation, the Australian situation is
similar to that of the United States. Using very conservative methodology,
attainment of a 20 percent emission reduction is estimated to slow economic
growth and cause GNP in 2005 to be at least 1.2 percent below the no-policy
baseline GNP levels. Since Australia is a small economy with an open capital
market, the investments needed to achieve the emissions target may be possible
without driving up interest rates or crowding out other investment.
Short-run economic modeling for the U.S. economy shows that a carbon
charge of $100 per ton would have a significant effect on both CO₂ emissions
and economic growth rates (Montgomery, 1989). One widely-used
macroeconometric model shows a maximum depression of 2 percent in real GNP
from baseline levels over the next decade; another shows a maximum effect of 6
percent. Maximum effects on the overall price level range between 2 and 4
percent. At 1988 energy consumption levels, a charge of this magnitude would
raise approximately $130 billion annually. However, additional debt service
costs and higher federal expenditures for cyclically sensitive programs would
almost fully offset this additional revenue in the near term. Reductions in
other taxes could reduce but not eliminate these macroeconomic effects, but
would also lose some of the CO2 reduction benefits associated with a weaker
economy.
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Morris et. al. (1990) use a linear programming model to consider the
potential for short term CO2 reductions in the U.S. Energy-saving
technologies are applied based on engineering estimates of their cost-
effectiveness (comparing higher initial cost and lower operating cost)
evaluated at a 7 percent real discount rate. Many low- or no-cost
technologies are identified using this criterion, which does not consider
other relevant product attributes. Some of these technologies, such as
improved insulation retrofit options, represent one-time reduction
opportunities *** emissions growth continues from a lower base once they are
installed. All chosen technologies are assumed to be applied from 1985
onwards, but no mechanism for implementing the technologies selected by the
model either prospectively (or retrospectively) is identified. The marginal
cost of a 20 percent reduction in emissions from 1990 levels, assuming
significant new investment in nuclear power, is $39 per ton. Without new
nuclear power, the marginal cost of a 20 percent reduction is $130 per ton.
d. Energy Sector Impacts. Because coal is at the same time this
country's (and the world's) most abundant fossil fuel, as well as the fossil
fuel with the highest carbon emissions per unit of energy, it is impossible to
construct a plausible scenario for substantial CO₂ emissions reduction without
a major adverse impact on the coal industry.
The Department of Energy provided some rough calculations of possible
impacts. They find halving CO₂ emissions growth could produce a 25 percent
decline in coal industry employment (relative to baseline assumptions) by
2025, while stabilizing emissions could require a 40 percent decline over this
35-year period. Global commitment to a 20 percent emissions cut could lower
employment by about half; unilateral OECD commitment to this global goal would
eliminate the U.S. coal industry, as would global or OECD-only commitment to a
50 percent reduction in CO2 emissions.
It is important to recognize, however, that elimination of coal-mining
jobs gradually over time does not necessarily imply increased general
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unemployment, in the case of an expanding economy though there may be
persistent regional problems. A shift to other energy sources would create
jobs. In the short run, jobs will likely be created in the natural gas
industry. In the longer run, three regional studies of biomass energy use
sponsored by the Department of Energy's Regional Biomass Energy Program
(Council of Great Lakes Governors, 1985; Chamberlin and High (1986); Tennessee
Valley Authority, 1989) suggest that a shift from fossil to biomass energy
would on balance create jobs. Similarly, a study conducted for the California
Energy Commission (1986b) suggests that renewable energy technologies are
generally more labor-intensive than oil and gas.
2. Regulatory Adjustments. There are a number of reasons why total
U.S. investment in energy-efficiency may be suboptimal. First, many costs
associated with the production, transportation, and conversion of fuels--
including air and water pollution, storage of nuclear wastes, and reduced
energy security--are not fully reflected in retail prices for fuels and
electricity. Second, electricity prices tend to be based on average cost
rather than on marginal cost, which is often higher. Third, it is often
difficult for buyers to acquire or analyze information on available energy
efficiency options. It has been argued that this difficulty leads industrial
buyers to ignore energy use implications of relatively small purchases--such
as lighting. Similarly, since it is difficult to estimate future utility
bills, it has been argued that builders and homeowners tend to focus
excessively on the initial capital costs of appliances and space heating
systems, rather than on discounted lifecycle costs. At least one often-cited
econometric study (Hausman, 1979) finds that, consistent with this hypotheses,
consumers act as if they have abnormally high discount rates when making
appliance purchase decisions.
Based on these and related arguments, and on studies that suggest that
cost-effective conservation could reduce U.S. energy use by 20 percent or more
(Pirkey and Scheer, 1988), many analysts have called for a variety of
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regulatory initiatives to increase the efficiency of energy use and, thereby,
to reduce CO₂ emissions.
a. Reform of Electric Utility Ratemaking. It must be understood at the
outset that average cost is not always below marginal cost and that
electricity prices are not always set by simply averaging costs. The prospect
of self-generation by some large industrial customers, in particular, may
serve to keep industrial prices near marginal cost.
The literature on this issue is thin, but a recent study by Wenders
(1986) provides an instructive empirical analysis of electricity prices
charged by 5 major utilities throughout the United States. Using 1980 and
1981 data, he finds that prices were on average below marginal cost, but the
pattern of deviations from marginal cost was complex. Prices were above
(long-run) marginal cost in peak periods and below marginal cost otherwise;
residential prices were below marginal cost, while some utilities charged
commercial and industrial customers prices above marginal cost.
This complexity, the likelihood that price elasticities vary by customer
class and between peak and off-peak periods, and the variability of rate
structures within Wenders' small sample suggests that the elimination of
electricity pricing distortions would be as likely to yield increases in
consumption and emissions as decreases--though such reform would on balance
improve resource allocation.
b. Utility Demand-Side Management. Many analysts have called for reform
of electric and gas utility regulation to give utilities incentives to remove
impediments to efficient investments in energy conservation. The basic
rationale is that existing regulation discourages utilities from promoting
energy efficiency, because lower demand generally reduces earnings, and that
there are information-related entry barriers to third-party providers of
"energy services" (Moskovitz, 1988). Two approaches to reform have been
widely discussed.
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The first approach is to permit utilities to increase their earnings by
making cost-effective investments in conservation--even if those investments
are on their customers premises. Programs of this sort are newly in place or
under development for 8 New England electric utilities, which account for
about 75 percent of the region's power demand (Foy, 1989). A key feature of
these efforts is close attention to evaluation and monitoring; this should
result in a rapid accumulation of useful data. Based on preliminary
experience, the Conservation Law Foundation estimates that programs of this
sort could reduce annual U.S. anthropogenic CO₂ emissions by between 0.7 and
0.8 percent (Foy 1989, 1990).
A second, complementary approach is to integrate conservation into the
competitive bidding process for meeting new electricity supply requirements,
which has been adopted in 18 states and is under active consideration in at
least 15 more. Cicchetti and Hogan (1989) describe an economically-efficient
approach to doing this; see also Joskow (1990). The beginnings of such a
comprehensive program can be found in such diverse states such as Maine,
Massachusetts, New York, California, and Wisconsin. Bidding selection
criteria could also include environmental externalities to allow
environmentally clean projects to compete favorably with lower cost but less
environmentally attractive proposals. A step in this direction has recently
been taken in the New York State Energy Plan (1989).
While the desirability of regulatory changes of these sorts is apparent,
estimates of potential achievable savings of electricity range from 4 percent
to 75 percent. Industry sources such as the Electric Power Research Institute
(1989) estimate potential savings of 20 percent between 1977 and 2010. The
uncertainty surrounding these estimates is evident from the size of the range.
According to the Northwest Power Planning Council, which has extensive
experience in demand-side efforts, hard quantifiable experiences is "extremely
limited." The New England efforts discussed above may remedy this in a few
years.
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C. Research and Information. During the past 8 years, DOE's R&D budgets
for end-user energy efficiency improvements have declined significantly.
DOE's 1989 conservation budget in constant dollars is less than a third of its
1980 level. However, DOE's budget for supply efficiency has increased. As a
proportion of the total national energy R&D budget (including expenditures by
DOE, NRC, EPRI, and GRI), energy efficiency accounts for only 9 percent.
Expanded funding would permit DOE to work more closely with industry to
demonstrate new energy-efficient technologies, assess the long-term
performance (durability) of energy-efficient technologies, and revive research
on the patterns and determinants of energy-related decision making and the
barriers to adoption of energy-efficiency actions.
Similarly funding for DOE programs that provide financial and technical
assistance to states has decreased by 2/3 in recent years. (These programs
include the State Energy Conservation Program, the Energy Extension Service,
and a small Least-Cost Utility Planning Program.) There are a number of areas
where DOE could sponsor demonstration of energy-efficient equipment and work
with trade associations to encourage dealers to stock energy-efficient systems
and building managers to install them.
d. Building and Appliance Standards. Experience with energy-efficiency
standards throughout the country (especially in California and the Pacific
Northwest) shows that they can reduce energy consumption, and thus CO₂
emissions. For example, California's Title 24 building standards cut
statewide electricity use by almost 2 percent in 1985 and are expected to cut
electricity use by more than 6 percent in 2007 (California Energy Commission
1988). [Restore if EPA supplies reference for bibliography. If imposition of
Federal standards is deemed inappropriate, DOE could assist state and local
governments on code development and training and could assist builders on
design and construction techniques aimed at cost-effective conservation.
These and related objectives would be furthered by increasing DOE's budget for
building standards and guidelines, currently only $700,000 a year.
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The National Appliance Energy Conservation Act of 1987 (U.S. Congress
1987) requires DOE to review appliance efficiency standards on a regular basis
and to promulgate more stringent standards where technically and economically
feasible. As noted above, the Administration generally prefers-incentives or
direct correction of market failures provide attractive alternatives to the
imposition of command-and-control standards. The pace of the statutorily
required review could nonetheless be accelerated. DOE could also review the
feasibility of expanding efficiency standards to other products, including
incandescent and fluorescent lamps.
e. Transportation. The corporate average fuel economy (CAFE) law was
enacted in 1975 and established a fleet-average goal of 27.5 mpg for 1985 and
beyond. That goal has been achieved, and the average fuel economy of the new
car fleet has been quite stable at around 28 mpg for several years. Increases
in fuel economy have produced essentially proportional reductions in CO₂
emissions per vehicle mile. The CAFE program is controversial and was opposed
by the previous Administration, though the standard was increased by this
Administration in the spring of 1989.
Further increases in the CAFE standard are feasible and would likely
reduce CO₂ emissions; estimates of the costs of such increases are
controversial. It seems clear that widespread use of currently-available and
likely future technologies would permit increases in the average fuel economy
of the new car fleet without reducing performance below recent levels. The
Office of Technology Assessment (OTA; Plotkin, 1989) considers standards in
the 32-33 mpg range for model year 1995 to be feasible in this sense. The
Department of Energy (Stuntz, 1989) point to a 29-31 mpg range for that year,
and 36 mpg by 2000. The OTA estimates that by 2010 a 33 mpg standard would
reduce U.S. fossil fuel CO₂ emissions by 0.5 percent (and world emissions by
0.1 percent) and U.S. fuel use by 5 percent. Oil imports would also be cut.
The difficulty of assessing the costs and benefits of increases in the
CAFE standard was discussed in Section IV.A.3, above. Benefits will be
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reduced if higher prices than would otherwise obtain reduce new car sales and
thus slow the improvement in fleet-average economy. Benefits will also be
reduced if lower per-mile costs lead to more miles per car. Cost analysis
must also consider impacts on diverse consumers, not just on national
averages, and must take into account performance improvements foregone as well
as the reductions in safety and spaciousness that could occur if manufacturers
meet higher standards in part by downsizing. Since fuel economy labels
provide good information, it is not clear that CAFE standards would remedy any
market failure that could not be addressed more efficiently by employing a
carbon charge or gasoline tax.
f. Agricultural Policy. A number of changes in agricultural programs
that would have other benefits can be expected to assist in reducing emissions
of greenhouse gases. These include reducing commodity price support levels,
encouraging additional tree planting, and conservation cross compliance.
This and the preceding Administration have sought to reduce price support
levels for program crops in order to increase the efficiency of resource use
within the agricultural sector. Reducing agricultural subsidies will tend to
reduce total crop acreage and change the mix of crops grown. Corn and wheat,
the two most widely grown program crops, account for 57 percent of nitrogen
fertilizers used. As is discussed in Section IV.E, below, the use of these
fertilizers is associated with emissions of nitrous oxide (N₂O), a potent
greenhouse gas. Reducing income support can be expected to reduce the acreage
devoted to corn and wheat and, possibly, to increase the acreage devoted to
soybeans, which fix their own nitrogen from the air. In addition, reducing
income support is likely to reduce per-acre use of all inputs, including
nitrogen fertilizers (Miranowski et al.).
Reducing agricultural support prices should also slow the rate of
conversion of forest and woodlands to cropland. It should also encourage the
conversion of marginal cropland into forestland, particularly in areas where
commercial forestry opportunities exist. This could result in a significant
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increase in CO₂ removal from the atmosphere. The key point is that less
support would allow farmers to respond to market changes induced by climate
change.
Cross compliance (Conservation Compliance) requires farmers who cultivate
highly erodible land to have a Soil Conservation Service approved conservation
plan by 1990 and to have it fully implemented by 1995. These plans for the
most part require the use of conservation tillage, which reduces mechanical
soil preparation and mechanical cultivation. Consequently, it reduces the
number of tractor passes through the field and the total tractor operating
hours per acre. This should result in a significant reduction in CO₂ and N₂O
emissions. But it also could mean increased use of herbicides and pesticides,
leading to other potential problems.
3. New Technologies. This section considers the role of advanced
technology in reducing CO₂ emissions in the electric generation and energy
end-use sectors. Of particular interest is how much can be gained by broader
use of currently available technologies that enjoy only limited commercial use
because they are new and/or expensive, as well as advanced technologies that
only require modest additional development for widespread application. While
new technologies offer significant CO₂ emissions reduction potential after
2000, there is no simple "technological fix" to this problem. Regulatory
barriers may affect the economics and introduction of some technologies.
At any given time, a combination of technological, behavioral, market,
regulatory, and macroeconomic factors interact to determine patterns of energy
use, the introduction of new technologies into widespread acceptance, and the
further deployment of technologies already in use. Even in the analysis of
high-quality historical data, it is difficult to identify the portion of
actual energy use that is due to any single causal factor, including new
technology. Thus the discussion below can only be indicative of the likely
role of new technology; further research may well change its conclusions.
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Progress in reducing CO₂ emissions depends on installing and using new
technologies in a host of applications. Key determinants of the penetration
of new technologies are sectoral rates of growth and average economic
lifetimes of capital assets. Lifetimes vary considerably, from motor vehicles
(8-14 years) to residential (30-80 years) and non-residential (31-48 years)
structures. Electric generating equipment (10-55 years), other transportation
equipment (16-28 years), and industrial equipment (14-27 years) have
intermediate lifetimes. Moreover, it can take years for economical new
technologies to become accepted. Thus new energy technologies may not come
into widespread use even in new installations for years--or even a decade or
more--after they are commercially available.
a. Electricity Generation. By 2010 an estimated 400 gigawatts (GW) of
new electric generating capacity may be needed to meet demand increases and to
replace existing capacity that will retire. New technologies can, therefore,
play a significant role in limiting CO₂ emissions from new electric generating
sources. But it must be recognized that only 65 GW of this total will replace
retired capacity; about 655 GW (91 percent) of existing capacity will not
retire until after 2010. CO₂ emissions may also be reduced as existing
generating units are repowered and reboilered with more efficient technologies
or with equipment designed to burn fuels with lower carbon content.
A variety of new technologies that produce electricity from coal, oil,
natural gas, and methane with improved efficiency in the conversion of fossil
energy into electrical energy are in various stages of development. By
reducing the amount of fossil fuel burned to generate a given amount of
electricity, these technologies can reduce CO2 emissions per unit of
electricity produced. Renewable resources, primarily hydropower and wood,
provided 8 percent of the nation's energy in 1988. Newer renewable resource
technologies, including wind, solar thermal electric, geothermal electric,
photovoltaic, and biomass technologies, will make increasing contributions in
coming decades.
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The future use of nuclear power both worldwide and in the United States
is and will be dependent upon many factors, including relative cost, national
security considerations, third world development, progress in dealing with
nuclear waste disposal and nuclear weapons proliferation, continued safe
operation of existing nuclear plants, and establishment of a stable and
certain licensing process. The goal of the DOE nuclear reactor program is to
develop nuclear reactors with simplified and standardized designs and passive
safety features, designs which hold the promise of revitalizing the nuclear
power industry through the simplification of the licensing process and
resulting reduction in costs and financial risks. In addition, an NRC
rulemaking procedure is in place to pre-approve standardized nuclear plant
designs so that parties interested in purchasing a plant have assurance that
there will be no intractable licensing problems. Final designs will be ready
for demonstration or commercialization in the 1990s and, if public attitudes
and regulatory changes reduce business risks, the next generation of reactors
may come into use after 2000.
On balance, while important gains in generation efficiency are possible,
they are not likely to penetrate the market substantially in the near term
based on market forces alone. The potential for advanced technology to reduce
generation-related CO₂ emissions appears to increase substantially after 2000,
but this potential has wide uncertainty bounds.
It is technically possible to "scrub" carbon from combustion waste gases,
but it is very expensive. One study concludes that collection and disposal
of powerplant CO2 emissions would at least double the cost of coal-fired
electric power (Steinberg, 1983). There has also been some discussion of
methods of utilizing only the hydrogen in fossil fuels (Steinberg and Cheng,
1987). These ideas are in their infancy and are many years away from
commercial application.
b. Energy End-Use Technologies. Many estimates of conservation potential
indicate that new technologies could produce significant savings over expected
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energy use, even by the year 2000. These estimates are buttressed by analysis
of historical data, which indicates that over the 1972-86 period, technology
improvements have played particularly significant roles in reducing energy use
in all sectors, particularly industrial and transportation but also including
commercial and residential buildings.
The contributions from new technology to energy efficiency gains are
potentially substantial, particularly after 2010. Of course, the eventual
levels of application depend heavily on fuel prices and the economic lifetimes
of capital stock. Because of lower lifetimes, the prospects for near term
stock turnover are highest for transportation vehicles, appliances, and some
light industrial equipment. Most residential, commercial, industrial and
utility structures and large equipment technologies require much longer time
periods to be replaced.
On balance, advanced energy use technology seems to have the potential to
contribute significantly to reducing CO₂ emissions, but estimates of the
extent of the contribution vary widely. For example, a recent study (EPRI,
1990) found that instantaneous replacement of the entire stock of electric
end-use equipment with the most energy-efficient alternatives available could
reduce electricity use by 24 to 44 percent from projected levels in the year
2000. Exclusion of technologies that are not cost-effective and relaxation of
the instantaneous replacement assumption, which does not seem to approximate
any feasible policy, would significantly change these estimates. Most energy
projections indicate that energy efficiency gains on the order of 12 percent
can occur by 2010 through the operation of market forces if fuel prices rise
as projected. Substantial additional gains in energy efficiency could occur
by more widespread application of "best practice" technologies, but extensive
policy interventions or much higher fuel prices are essential to achieve them.
Significant technical potential for efficiency improvements and fuel switching
beyond 2010 exist, but increased efforts to develop and commercialize new
technology are required in the near term to achieve these gains
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4. Forestation. Reforestation and afforestation policies may remove
CO2 from the atmosphere and store the carbon in the woody parts of living
trees. By preventing the release of such carbon, policies that limit
deforestation reduce net emissions of CO₂. However, reforestation may affect
microclimates and the soil's ability to absorb co². As a forest grows, an
annual flow of carbon is removed, but it is generally assumed that carbon
release from decay balances carbon uptake from new growth in mature forests.
Reforestation is a (comparatively) short-term approach that may cause a
substantial decrease in net CO₂ emissions for three to five decades (Sedjo and
Solomon, 1988). After this period, a large effort would be required to keep
the absorbed carbon sequestered. However this delay could allow time for the
development and adoption of new technologies that emitted less carbon, or the
mature timber could substitute for fossil fuels creating a closed carbon cycle
with continuous replanting.
a. Cost Analysis. Sedjo and Solomon (1988) provide cost estimates for a
global reforestation plan designed to sequester the entire flow of net
additions of carbon to the atmosphere. Carbon absorption is highest for
recently planted fast growing species on tropical sites. Plantations with
these characteristics are estimated to sequester 2.3 metric tons of carbon
annually per acre. If such sites were used, an estimated 1.1 trillion acres
of land would be required, while if slower growing trees were planted on sites
in temperate zones, over 7.4 trillion acres would be required. These are
large requirements; 1.1 trillion acres is 50 percent greater than the current
forested area in the United States and more than 15 percent of the forested
areas in the world. A forestation program on this scale would require a
worldwide search for suitable and inexpensive land.
Estimated total costs of absorbing global net carbon emissions range from
$372 to $697 billion. Based on total program costs and assuming a 30 year
rotation, the cost ranges from $4.29 to $8.03 per metric ton of carbon
removed. In addition, future harvest of the large quantity of trees required
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for significant carbon sequestering could disrupt timber markets and
dramatically reduce incentives for planting on private forestland.
Moulton and Richards (1989) examine a more modest carbon sequestering
program in the United States. They conclude that marginal costs per ton range
from $17.71 to $102.63 per metric ton depending on program size. The lower
estimated per ton costs for the larger worldwide sequestering program flow
from more optimistic assumptions about both carbon absorption and land costs.
These assumptions may be justified on the availability of less expensive land
outside the United States and faster forest growth rates on tropical sites.
However, the smaller program with more pessimistic assumptions is probably a
more reliable guide to costs for U.S. reforestation programs.
Forestation programs of moderate size can be implemented in a wide
variety of ways to minimize impacts on land costs. Several options have been
outlined by the U.S. Forest Service (1989), including volunteer urban tree
planting programs, cost-sharing and technical assistance programs, and land
leasing programs. For example, enhancing forest growth on sparsely forested
land would not increase competition for land but would increase carbon uptake.
Urban tree planting would not raise land costs and, by providing shade, may
reduce fossil fuel consumption by reducing demand for air conditioning. Land
leasing forestation programs or programs that only involve cost sharing in the
costs of planting, improving, and managing lands for timber production are two
alternatives for increasing forestation on private non-urban land. On a large
scale, such programs could reduce expected stumpage prices and thus lead to
reduced forestation in current commercial forests.
The net ecological and recreational benefits of forestation would depend
on the type of forest planted and the current use of the land. All types of
forest would tend to have soil erosion benefits when established on erodible
cropland. However, fast growth forest plantations, with repeated harvest of
small trees for fiber or energy, would have few recreational benefits and
offer habitat for limited species of wildlife. Frequent harvests and
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replanting of fast growth stands might result in added erosion if such forests
replaced natural forest land or grasslands. Grassland, sparse forest land,
mixed use forest (including grazing use), and old growth forests offer diverse
and unique wildlife habitats and ecosystems. Since the greatest intake of CO₂
occurs in young, fast-growing stands, enhancing the carbon storage properties
of land in such current uses would dramatically change the ecosystem, and
widespread forestation with the sole goal of carbon storage could
significantly decrease biodiversity.
b. Management. Because new forests represent a growing stock of carbon,
the efficacy of forestation as a carbon management tool depends importantly on
how the stock of accumulated carbon in mature forests is managed. If new
forests are allowed to mature, significant carbon removal would occur only
over a 30 to 40 year period. To continue carbon removal through forestation
would require forest establishment on increasingly large areas of the Earth's
surface.
If forest land is cleared for other uses in the future, the carbon stored
during forest growth is then released to the atmosphere. If forest carbon is
somehow stored so that decay and release to the atmosphere does not occur, a
continuous flow of carbon can be removed. (Solidwood products are estimated
to contain only about 0.5 percent of the carbon in living trees, however
(Rotty, 1986).) More plausibly, forests might be used as an energy source.
In this case, net carbon removal would occur while new forest growth is
established, and a continuing carbon reduction benefit would occur to the
extent that bio-fuels replaced fossil fuels. Since biomass and other
renewable energy programs can also produce large demands for land, analysis of
afforestation programs requires careful coordination with energy system
analysis.
Each of these management options has quite different effects on economic
cost and on carbon removal. Unfortunately, the costs and carbon removal
benefits of these options have not been systematically analyzed.
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C. Methane
Methane (CH4) accounted for about 19 percent of the increase in radiative
forcing in the 1980s. The rise in atmospheric CH4 concentrations over the
last century is due to a relatively small imbalance between sources and sinks.
Current assessments indicate that atmospheric stabilization will require only
a 10 to 20 percent reduction in annual emissions.
As Table II.3 showed, the developed countries account for only about 25
percent of anthropogenic CH4 emissions, in part because over half these
emissions are produced in agriculture. Thus significant, cost-effective
reductions in CH4 emissions will require global action. While a number of
approaches to controlling these emissions are available, no systematic policy
design or costing analysis seems to have been performed. There are ongoing
efforts within the Administration to better quantify the costs of methane
reductions and to develop, refine, and demonstrate best management practices
within the areas discussed below: animal waste, coal mining, landfills,
livestock, and rice.
1. Animal Waste. Animal wastes are estimated to generate about 4
percent of anthropogenic CH4 emissions. This occurs largely in developed
countries where these wastes are managed in lagoons. The most promising
technology for abatement of this methane is decomposition in anaerobic
digesters to produce methane gas, which, like natural gas, can be used to
produce electricity and/or shaft power or be burned in boilers as a heat
source. This approach is most promising at sites with large animal herds such
as feedlots and dairy farms. Full recovery at these sites would reduce these
emissions by over 50 percent. USDA estimated in 1978 that approximately 50
million tons of "economically collectable" livestock and poultry residue, when
converted through anaerobic digestion, could generate CH4 equal to 7 percent
of the natural gas consumed in the United States in 1988.
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Fewer than 100 anaerobic digesters currently are operating on farms in
the United States, however. Most of these are producing electricity to power
farm equipment. Excess electricity often is sold to the utility grid system.
Poor economics, management problems and infrastructural barriers have
restricted widespread adoption of this technology. Most of the plants are one
of a kind and expensive. Typical costs of electricity generated are 5 to 7
cents per kwh. Additional research should enable the development of
standardized facilities that are substantially cheaper and more efficient.
Currently, farmers receive 2 to 3 cents per kwh for electricity they provide
to utilities except in a few areas, notably California where 9 to 11 cents per
kwh is paid. Many power companies are reluctant to accept power from farmers,
and establish major road blocks adding to the cost of an intertie.
2. Coal Mining. Methane from coal mining is estimated to contribute
13 percent of anthropogenic emissions. This methane is pipeline quality and
can be recovered as a resource, thereby both reducing CH4 emissions and use of
other fossil fuels. It is technically feasible to reduce 60 percent of these
methane emissions through pre-mining degasification. This recovery would be
performed at a limited number of sites, since about 10 percent of the world's
mines generate most of the methane. These mines are concentrated in the 9
countries that produce the bulk of the world's coal.
Economic assessments show that methane recovery can be profitable with
existing technology. Indeed, several recovery operations are running
profitably in the United States. An important limitation to more recovery in
the United States is that gas companies typically own the rights to the
methane in coal mines. The coal companies can only profit from methane
recovery by buying rights to this methane or setting up some sort of joint
venture operation.
Preliminary assessments also show that mining methane could be profitable
in countries such as China and Poland. For example, analysis suggests that it
is less expensive for China to derive BTUs from mining methane than coal.
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Much of China's coal is deep mine coal that is expensive to bring to the
surface, and gas pipelines are less expensive to build than the railroads
necessary to transport the coal. Despite these analyses, methane mining has
not been implemented on a large scale, and a continued rise in coal mining
activity is planned to meet China's growing energy needs. Since the USSR,
China, East Germany, and Poland are major coal producers, transfer of methane
recovery and methane mining technologies to these countries could produce
substantial benefits.
3. Landfills. Landfills, mainly in developed countries, are estimated
to contribute 10 percent of anthropogenic CH4 emissions. Of the 6,584
municipal solid waste landfills in the United States, only 123 (1.9 percent)
now recover methane for energy use. Under current market conditions, methane
recovery is only viable for large sites with a suitable gas user nearby or at
which electricity can be generated and sold into the grid. Regulatory
barriers also exist in many areas. Ongoing research aims at enhancing the
economic viability of methane recovery.
EPA hopes to promulgate regulations limiting CH4 emissions from large
landfills in the United States. EPA believes that these regulations have the
potential to reduce total anthropogenic CH4 emissions by about 1.5 percent.
Controls applied in other countries could produce further reductions.
4. Livestock. Livestock generate about 20 percent of anthropogenic
CH4 emissions. Intensive (grain-fed) animal production systems used in
developed countries result in significantly less methane per unit of output
than do extensive (grass-fed) systems prevalent in developing countries.
Production methods that enhance efficiency of livestock enterprises also
reduce methane emissions per unit of output. Through changes in diet and
management of smaller herds due to increased productivity, emissions may be
reduced by 25 to 75 percent. Other options for methane reduction include
increased use of hormones and lower price supports. The costs of these
changes will be small.
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In developing countries, many of the cattle are nutrient-deficient. By
supplying nutrient supplements, methane emissions can be reduced, but the
costs and potential of this approach are not well understood. In general,
while it is possible to reduce methane emissions from intensive livestock
production systems, relative gains will be small and may not be achieved
without significant technological advance. Further development of best-
practice livestock management systems and diffusion of those systems into
practice seem the most promising steps in this area.
5. Rice. Rice cultivation accounts for about 34 percent of
anthropogenic CH4 emissions. Recent work shows that methane emissions may be
reduced by decreasing use of animal manures as fertilizer, but there is still
considerable uncertainty regarding the cost and volume of reductions that can
be achieved in this manner.
D. CFCs and Related Substances
Chlorofluorocarbons (CFCs) accounted for about 14 percent of increased
radiative forcing in the 1980s. In the absence of any control measures, CFCs
would account for a much larger share of future increases. However, the
Montreal Protocol on Substances that Deplete the Ozone Layer represents a
commitment to significant controls. While primarily aimed at limiting CFCs
and halons because of the threat they pose to the ozone layer, this treaty
also results in substantial benefits in terms of global warminggreenhouse gas
emissions. The Montreal Protocol has now been ratified by 49 nations and the
European Community. These nations account for over 90 percent of the global
consumption of CFCs.
In response to recent scientific evidence that the risks of ozone
depletion from CFCs and other ozone-depleting substances are greater than
previously thought, President Bush and others have called for strengthening
the Protocol by phasing out CFCs and halons completely. Over 70 nations
supported the Helsinki Declaration at the first meeting of the Parties to the
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Montreal Protocol in May 1989, which calls for a phase out of GFCs and halons
and limits on other ozone depleting chemicals. The the Protocol will be
renegotiated in June 1990 and will almost certainly include a phase out of all
GFCs by the year 2000 for applications where there are safe substitutes plus
major reductions in halon use the Protocol was amemded in June 1990 to expand
its coverage to additional ozone depleting substances and to provide for the
complete phaseout of CFCs by 2000. This phase out would The CFC phaseout will
significantly reduce the increase in radiative forcing in the next century.
Significant technological advances made during the past several years
make such a phase-out feasible. In the near term, substantial emission
reductions are being achieved through increased recycling and improved
housekeeping (particularly by electronics companies in their use of CFC-113).
Development of chemical and process substitutes has also progressed rapidly
and has allowed major firms and industries to establish goals for eliminating
their use of CFCs ahead of the likely Montreal Protocol schedule. For
example, IBM and AT&T have a phase-out goal by 1994 and the electronics
industry as a whole, through its major trade association, has established the
goal of an 80 percent reduction by 1997 and a phase-out by 2000. Similarly,
the rigid foam insulation industry has established a goal of a complete phase-
out by 1995.
The costs of eliminating the use of CFCs and halons will be approximately
$3 billion over the next ten years (1989 dollars, discounted at 5 percent).
These costs could be substantially reduced, along with CO₂ emissions, if
industry can move to more energy efficient refrigerants. For example, if the
use of HFC-152a as a refrigerant proves acceptable, cost savings from improved
energy efficiency could reduce the costs of a phase-out in these applications
by 57 percent over the next ten years. EPA and other agencies are working
with several industry groups to examine technological, environmental, and
institutional issues related to the use of a wide array of more energy
efficient, low greenhouse alternatives.
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E. Nitrous Oxide
Nitrous Oxide (N2O) accounted for about 5 percent of the increase in
radiative forcing in the 1980s. As Section II noted, data on sources of N2O
emissions are quite poor. The primary anthropogenic source seems to be the
use of nitrogenous fertilizers, which is increasing at 1.3 percent per year in
industrialized countries and 4.1 percent per year in developing nations.
From the point of view of policy design, it is unfortunate that the
nitrogen content of fertilizer is not the primary determinant of N2O
emissions. Emissions of N₂O vary by one to two orders of magnitude among
different types of nitrogenous fertilizers. Other factors affecting emissions
include the rate and timing of fertilizer application, the placement of
fertilizer (deep or shallow), water management (particularly in rice
cultivation), tillage and herbicide use, and the use of legumes as a nitrogen
source. No systematic attention seems to have been devoted to the design or
cost of policies to reduce N2O emissions from fertilizer use or other sources,
in part because the relevant science base is weak, though some of the
agricultural policy changes discussed in Section IV.B.2.g., above, would
likely reduce N₂O emissions from U.S. farms.
New technologies that improve fertilization efficiency also tend to
reduce N2O emissions, but little appears to be known about their cost-
effectiveness. Advances in biotechnology, particularly the development of
weed-resistant crop varieties and nitrogen-fixing cereal crops, may reduce N2O
emissions in the future.
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TASK FORCE MEMBERS
Richard Schmalensee, Chairman
Council of Economic Advisers
Bruce Bartlett
Department of the Treasury
Frederick M. Bernthal
Department of State
Robert W. Gorell
National Science Foundation
J. Clarence Davies
Environmental Protection Agency
Bruce Gardner
Department of Agriculture
Robert E. Grady
Office of Management and Budget
C. Boyden Gray
Council to the President
Nancy Maloley
Office of Policy Development
Nancy Maynard
Office of Science and Technology Policy
Barry McBee
Office of Gabinet Affairs
Mark Plant
Department of Commerce
John Schrote
Department of the Interior
Linda Stuntz
Department of Energy
90