Convenient or Not, the Climate is Changing An Economic Conversation about Global Climate Change

Congrats to Al and the IPCC "for their efforts to build up and disseminate greater knowledge about man-made climate change, and to lay the foundations for the measures that are needed to counteract such change"

What can an economist do? Understand drivers of change Estimate expected size & distribution of benefits & costs Policy solutions to increase benefits & decrease costs

IPCC 2007 The risks of the worst impacts of climate change can be substantially reduced if GHG levels in the atmosphere can be stabilized between 450 and 550ppm CO2 equivalent (CO2e). The current level is 430ppm CO2e today, and it is rising at more than 2ppm each year. Requires emissions to be at least 25% below current levels by 2050.

IPCC 2007 Reflecting (clouds / snow) or absorbing (GHG, dust, aerosols) Radiative forcing is the change in the balance between radiation coming into the atmosphere and radiation going out. A positive radiative forcing tends on average to warm the surface of the Earth, and negative forcing tends on average to cool the surface. Error bars show the uncertainty range.

IPCC 2007 Natural vs human forcings

Expected benefits? Longer growing seasons More rain => more water Less cold-related deaths New trade routes as ice melts (Bering Strait) Swamped by damages?

Expected damages! Food / water shortages, droughts, floods, hurricanes, wildfires, species extinction, pests, disease, thresholds / tipping points / feedback loops… Estimates: 0.26% US GDP Nordhaus (1991) 2% US GDP Cline (1992) 5% to 20% of global GDP each year, now & forever (Stern 2006) Nordhaus (Yale) 12 billion Cline (Peterson Institute D.C.) Stern (former chief economist at WB, now at London School of Economics) Global gdp = $66 trillion (12 zeros!); 5% = 3.3 trillion

What then do we do? Policy prescriptions Pricing of carbon Support low-carbon technologies Remove barriers to energy efficiency

Pricing of carbon: Tax Want less of something? Tax it! Response? Raises the price for anyone who: a) drives a car b) uses electricity produced with fossil fuels Use this tax to reduce others (payroll tax) $37 per ton of carbon "starter tax" mentioned earlier, equating to around 10 cents a gallon of gasoline. Applied to all U.S. fossil fuel burning, will bring in roughly $55 billion a year in revenue. This equates to around $180 per U.S. resident.

Support low-carbon technology Remove existing market distortions High subsidies to fossil fuel technologies Reduces incentive to innovate Infrastructure Grid structure high entry barrier Funding for R & D FF subsidies: $25 billion a year but roughly one trillion dollars annual revenue for coal, oil and natural gas burned in the U.S.

Remove barriers to energy efficiency Regulation policy Restricting availability of inefficient technologies (CFC’s) Information policy Performance labels Transparent energy bills “Smart meters” / peak load pricing Smart meters: able to monitor your own energy usage via the Internet and see when you're using the most energy. Matches consumption with generation: delay the construction of additional generation or at least the purchase of additional energy. California PG&E trying this.

Tax over other alternatives Increased fuel efficiency? Not free. Passed on to consumers. Encourages more driving (now cheaper). Cap and trade ok but no revenue Developed countries could face a higher tax Taxes collected in developing countries would stay in country Mankiw Harvard