|Climate Protection Policies: Can We Afford to Delay? (WRI, 1997, 44 pages)|
If international efforts to reduce carbon dioxide emissions are to succeed, much will depend on the willingness of the U.S. Administration to make a meaningful commitment at Kyoto, and on the ability of Congress to ratify a treaty and to enact implementing legislation. For various reasons, the United States occupies a unique and highly influential position within the ongoing negotiations. It is the largest emitter of carbon dioxide (CO2) and other greenhouse gases both as a nation and on a per capita basis. Moreover, the United States alone has the economic and political influence to ensure that an international protocol is reached and adhered to. It is fair to say that U.S. action will play a major role in determining both the shape of the Kyoto agreement and its subsequent success or failure.
Unfortunately, the precedent set by the U.S. response to the previous international commitment is not encouraging. Despite the commitment made at the 1992 Earth Summit in Rio to reduce emissions to 1990 levels by 2000, the reductions promised will not be achieved because the voluntary programs adopted domestically were not backed up by appropriate market and policy signals. The economy has reacted accordingly. Negotiations will take place against a backdrop of steadily rising emissions, already more than 8 percent above 1990 levels and predicted to be 15 percent higher than 1990 levels by the year 2000 (U.S. EIA, 1997, 1996).
Since the Rio summit, emissions trends, investment decisions,
and technological trajectories have all advanced in the wrong direction, working
against the need to slow, and ultimately reverse, growth in greenhouse gas
Tying us to future emissions growth is the present pattern of investment and consumption choices. Industries and utilities continue to make heavy investments in fossil fuel-dependent power stations, machinery and equipment. Meanwhile, consumers are increasingly opting to use light trucks for personal use, ensuring that the overall fuel efficiency of new vehicles is falling (Mackenzie, 1997). Fossil fuel-dependence is reinforced by the latest technological developments. Nearly twice as much is being spent on R&D for fossil fuel technologies as is being spent on R&D for renewables and energy conservation (Dooley, 1996). Coupled with forecasts of decreasing fossil fuel costs, projections of future renewable energy use have dropped, not risen, over the last decade. In the early 1990s, projections for U.S. consumption of renewable energy in 2010 stood at 12.48 quadrillion Btus, or 12 percent of total energy consumption (U.S. EIA, 1991). By 1997 the forecast was for 7.25 quadrillion Btus, or 7 percent of total energy consumption (U.S. EIA, 1996).
Since the Rio summit, emissions trends, investment decisions, and technological trajectories have all advanced in the wrong direction, working against the need to slow, and ultimately reverse, growth in greenhouse gas emissions. Nonetheless, these developments are consistent with calls from certain interest groups and coalitions for further delay before responding to the potential threat of climate change. To support their case, some have pointed to recent economic research which has seemingly endorsed a strategy of delayed emissions reductions.
A CASE FOR DELAY?
Several economic studies have caught the attention of policy-makers because they show that letting emissions rise in the short-term before cutting them subsequently may lower the overall costs of climate protection (Manne and Richels, 1997; Kosobud et al., 1996; Richels et al., 1996; Wigley et al., 1996).1 These results stem from attempts to identify cost-effective ways to meet the long-term goal of stabilizing atmospheric concentration levels of greenhouse gases - the challenge set by the United Nations Framework Convention on Climate Change.2
1 Of these studies, the Wigley, Richels and
Edmonds (WRE) study has attracted the most attention (Wigley et al.,
1996). Their article has been widely misinterpreted and even construed as a
recommendation to 'do nothing,' despite express comments
to the contrary in the text (e.g. p. 242). The frequent reference here to the
WRE study, and the use of their emissions paths, reflects the article's
prominence and is not intended to suggest that the authors advocate a 'do
2 The goal of the U.N. Framework Convention on Climate Change is to achieve "stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system."
WRE paths allow for significantly higher emissions in the near-term than their WGI counterparts before requiring more stringent reductions later to meet the same final concentration level.
Source: Wigley et al., 1996
A given concentration target can be achieved by following any number of different emissions paths over time. Figure 1A illustrates two possible emissions paths (WRE and WGI) for each of two alternative concentration targets (atmospheric concentrations of CO2 of 450 and 550 parts per million by volume).3 WRE paths allow for significantly higher emissions in the near-term than their WGI counterparts before requiring more stringent reductions later to meet the same final concentration level. Figure 1B shows the concentrations over time implied by the alternative emissions paths. With higher emissions at the outset, the WRE paths lead to higher CO2 concentrations than the corresponding WGI paths prior to eventual stabilization. The different degrees of near-term action have implications for the overall cost of reaching a given concentration. In particular, some studies argue that emissions paths that rise higher in the short-term may be more cost-effective for four reasons (Wigley et al., 1996).
3 WRE refers to paths generated by Wigley,
Richels, and Edmonds as alternatives to the WGI paths originally generated by
Working Group I of the Intergovernmental Panel on Climate Change.
With higher emissions at the outset, WRE paths lead to higher CO2 concentrations than the corresponding WGI paths prior to eventual stabilization
Source Wigley et al., 1996
First, by allowing more time to alter the capital stock - everything from factories and machinery to entire power plants - the costs of adjusting the economy should be lower because less equipment will have to be modified or replaced prematurely. The transition toward a less carbon-intensive capital stock can occur as part of the natural and ongoing process of replacement Second, as technology improves with time, so it will become easier to reduce carbon emissions without sacrificing energy demands As a consequence, postponing some reductions until better technologies are available will lower the costs Third, a positive discount rate, reflecting the return on investment, ensures that future reductions are cheaper than present reductions, all else being equal A dollar saved and invested today will earn more dollars to spend on climate protection in the future Fourth, because CO2 gradually dissipates from the atmosphere, emissions in the near term will have little or no impact on the concentration level a century from now If final concentrations are all that matter, there are some 'free' emissions available, but they can only be used early on
Economic models which account for these factors predict that reaching a given stabilization target by a certain date is cheaper if a path of delayed emissions reductions is followed. A recent study suggests that following the WRE path to a final CO2 concentration of 550 parts per million by volume (ppmv) could lower the present value of overall costs by more than 75 percent compared with the corresponding WGI path (Manne and Richels, 1997). These cost savings are sometimes referred to as the benefits of 'when' flexibility.
A CASE FOR EARLY ACTION
Such results do not imply, however, that policies to reduce emissions can be postponed. Though the emissions paths suggest a 'do nothing' approach in the near term, the models achieve their results only because they are implicitly or explicitly premised on immediate and credible policy action. It is important to distinguish emission abatement paths from the timing of abatement policies needed to produce those paths (Schneider and Goulder, 1997).
Though the emissions paths suggest a 'do nothing'
approach in the near term, the models achieve their results only because they
are implicitly or explicitly premised on immediate and credible policy
By examining the assumptions and limitations of these models, the benefits of delayed action become much less certain. In particular, the conclusion that we can postpone policies overlooks seven key considerations.
· Early policy action is needed to establish a credible commitment to climate protection and to reverse years of policy choices that have favored carbon-intensive technologies. A promise to take action only after many years have passed will not be credible. (See Section 2.)
· Without credible policy signals, the needed changes in investment toward less carbon-intensive and renewable alternatives will not occur. Instead, new additions to an increasing capital stock will continue to rely on fossil fuels, making future transition more difficult. (See Section 2.)
· The opportunity to redirect technological advances toward more rapid development of renewable technologies will also be delayed. Instead, R&D efforts will continue to focus on fossil fuel-based systems and technologies, thereby enhancing our dependence on them. (See Section 2.)
· Delay by the United States will have global implications since other countries will not take action unless the United States does so. Consequently, carbon emissions will continue to grow rapidly in both developed and developing nations. (See Section 3.)
· Since scientists can't specify a safe concentration level, decisions have to be made under uncertainty. Emissions increases in the near term will make it harder to achieve lower concentration levels later should they be necessary. (See Section 4.)
· Potential benefits from climate protection policies, such as reduced air pollution and savings from more efficient use of energy, will be postponed. (See Section 5.)
· Postponing emissions reductions would mean faster rates of concentration build-up, raising the risks. (See Section 6.)
Unfortunately, the promise of benefits from delayed policy action may be illusory. They arise from a misunderstanding of the dynamics of the economy, a misinterpretation of certain economic studies, and, above all, a failure to account for important political considerations. Under a more realistic assessment of the issue, clear and consistent abatement policies should be implemented as soon as possible.