Impact of uncertainty in economic projections for stabilization scenarios Nir Krakauer

How important is assumed future economic growth for climate policy modeling? “Ultimately I think economic forecasting is more guess work than people realize. In times when you don't have a fundamental change, you can extrapolate curves, and people do that pretty well. But right now I don't trust extrapolation.” -- Robert Schiller, 11/08 Actual/assumed growth in world economic product, %/year: 4.9actual, actual, IPCC SRES (2000) scenarios, th-95th percentiles of IPCC SRES database of previous scenarios, actual,

Model framework: FREE (Feedback-Rich Energy- Economy Model) (Fiddaman 1997) Energy-providing sector Energy resource (fossil fuel & renewable) Economic production Consumption/welfare Carbon cycle Warming GHG emissions GHG in atmosphere Energy price Investment Climate damage  (  T) 2

Testing sensitivity to future growth: vary productivity growth over Factor productivity (log scale) Growth rate fixed, in these cases at 0.5% or 2%/year After 2100, return to default growth rate

Model intervention: carbon tax Revenue goes to subsidizing renewable energy (a feed-in tariff or production tax credit); this helps renewable energy production costs come down faster (learning curve) Phased in linearly over

2100 pCO 2 and warming as a function of economic growth (no carbon tax) production growth (%/year) 2100 warming (K) 2100 pCO 2 (ppm)

Economic damage due to warming as a function of economic growth production growth (%/year) Cumulative welfare loss by 2100 (trillion 1990$ consumption equivalent) 2100 Loss of production (%)

2100 fossil fuel emissions as a function of economic growth and carbon tax GT C production growth (%/year) Carbon tax ($/ton) - ramped up from 0 over

2100 pCO 2 as a function of economic growth and carbon tax ppm production growth (%/year) Carbon tax ($/ton)

Welfare gain from carbon tax (to 2300) Trillion $ equivalent consumption production growth (%/year) Carbon tax ($/ton)

What if coal resources are limited? In the FREE runs shown, recoverable oil and gas are limited, so prices rise and peak production is ~2010; however, there’s much more coal, and without a carbon tax peak production is ~2350 Dave Rutledge’s estimate of recoverable coal is 95% lower ( > 700 GT), so peak production with no tax is ~2020

2100 pCO 2 as a function of economic growth and carbon tax - low coal reserves ppm production growth (%/year) Carbon tax ($/ton)

Welfare gain from carbon tax (to 2300) Trillion $ equivalent consumption production growth (%/year) Carbon tax ($/ton)

Conclusions: climate policy in an uncertain economic outlook If growth is slower than in the IPCC scenarios, reducing emissions still makes economic sense - in fact, the welfare gain is greater A large tax on fossil fuels, in the presence of uncertainty about economic growth and about fossil fuel reserves, is good no matter what –if fossil fuel reserves are large, it will substantially reduce warming damages –if fossil fuel reserves are small, it will have less impact on warming but (especially if appropriately invested) smooth the transition to renewable energy

Implications for stabilization requirements Given where we are now, even reducing fossil fuel use from business-as-usual by % (e.g. through a substantial global carbon tax reinvested in renewable energy) will result in ~500 ppm peak CO 2 and ~2.5 K peak warming over the next 1-2 centuries Getting below ppm CO 2 and K warming (cf. Jim Hansen) will require stopping fossil fuel burning altogether, not just taxing it, plus other interventions to reduce atmospheric CO 2 (reforestation, soil- building organic agriculture, biochar, reaction with limestone)