|Climate Protection Policies: Can We Afford to Delay? (WRI, 1997, 44 pages)|
The call for delay is driven by the fear of adverse effects for the economy as a whole and for specific sectors. Many policy-makers and business interests believe that policies to restrict carbon emissions would be costly for the economy, a view supported by the pessimistic predictions of numerous economic models. These models, however, often rely on unduly pessimistic assumptions regarding economic behavior and potential policy responses (Repetto and Austin, 1997). Models based on more favorable assumptions tell a different story. With sensible climate protection policies, carbon reductions can be achieved with minimal impact on economic growth. This may be of little consolation to certain sectors, though.
Moreover, many models do not account for the full potential benefits from climate protection policies. If there are advantages from reducing emissions, then the argument for delay is stood on its head. Early action would bring forward benefits not costs.
BENEFITS FROM IMPROVED ENERGY EFFICIENCY
Many economic predictions suppose that energy is already being used efficiently, contrary to much evidence. From manufacturing processes to transportation options to household appliances, there are countless opportunities for improvements in energy efficiency (von Weizsäcker et al., 1997). Recent evidence suggests that energy use in U.S. residential and commercial sectors could be cut by between 25 and 50 percent (Energy Innovations, 1997). Other studies have estimated that a reduction of more than 20 percent of present carbon emission levels could be achieved at overall savings (IPCC, 1996c, ch. 9).
Such savings are not guaranteed, of course. Estimates ignore some 'hidden' costs, such as time needed to install and become familiar with new equipment. In some cases, market failures, such as a lack of information, and poor business practices prevent savings. Nonetheless, if a growing public commitment to lowering greenhouse gas emissions raises the visibility of energy costs, industries may actively seek out previously overlooked savings.
BENEFITS FROM REDUCED AIR POLLUTION
Fossil fuel combustion is a major source of local and regional air pollution, which contributes to respiratory illnesses, mortality, damage to crops and vegetation, and acid rain. Many people suffer from less dramatic effects, such as minor symptoms not requiring treatment and reduced visibility in scenic areas. Many of these impacts have no "price" and thus are often ignored by the conventional economic calculus used to evaluate the effects of carbon restrictions. Yet, they have a very real impact on people's welfare.
Climate protection policies that reduced fossil fuel use would also reduce air pollution and its associated costs - benefits that would be felt immediately. These benefits could be sizable, offsetting between 30 and 100 percent of the potential abatement costs (IPCC, 1996c, ch. 6; Burtraw and Toman, 1997). In particular, the reduction in particulate matter pollution alone that would result from less fossil fuel use, could have major health implications worldwide. Under a relatively stringent climate policy - a 15 percent reduction in developed country emissions by 2010, with smaller reductions in developing nations - an estimated 700,000 deaths per year could be avoided by 2020 (Working Group on Public Health and Fossil-Fuel Combustion, 1997).
REVENUE BENEFITS FROM REMOVED SUBSIDIES AND TAX EXEMPTIONS
Another immediate step toward reducing carbon emissions would be the removal of certain subsidies and tax exemptions to conventional energy sources. Worldwide, subsidies to conventional energy sources have been estimated at more than $300 billion (IPCC, 1996b, ch. 19). By helping to lower conventional energy prices, these subsidies ensure that consumption of fossil fuel is greater than it would be under more competitive conditions. In addition, a wide range of indirect subsidies, such as road construction programs, encourages fossil fuel use.
In the United States, government has already cut many subsidies to fossil fuel energy sources. Yet, between 1998 and 2002, federal subsidies for nuclear, coal, oil and natural gas will total $3.9 billion, while potential revenues of $13.2 billion will be passed up in preferential tax treatment to the same sectors (Shapiro and Soares, 1997).