1. Environmental and Natural Resource Economics 3rd ed. Jonathan M
Environmental and Natural Resource Economics 3rd ed. Jonathan M. Harris and Brian Roach Chapter 19 – Global Climate Change: Policy Responses
Copyright © 2013 Jonathan M. Harris

2. Table 19.1: Climate Change Adaption Needs, by Sector
Adaptation strategy
Water
Expand water storage
Expand desalination
Increase water-use and irrigation efficiency
Agriculture
Adjust planting dates and crop varieties
Crop relocation
Improved land management to deal with floods/draughts
Infrastructure
Relocate vulnerable communities
Build and strengthen seawalls and other barriers
Create marshlands for flood control
Dune reinforcement
Human health
Health plans for extreme heat
Increase tracking of heat-related diseases
Address threats to safe drinking water supplies
Increase medical services for affected communities
Tourism
Relocation of ski areas
More reliance on artificial snowmaking
Transport
Relocation of some transport infrastructure
New design standards to cope with climate change
Energy
Strengthen distribution infrastructure
Address increased demand for cooling
Increase use of renewables
Adaptation to climate change is essential, and will have significant costs in the areas of water, agriculture, infrastructure, health, transportation, and energy.
Source: IPCC, 2007.

3. Table 19.2: Alternative Carbon Taxes on Fossil Fuels
Coal
Oil
Natural Gas
Tons of carbon per billion Btu
25.6
17.0
14.5
Tons of carbon per standard unit of fuel
0.574/ton
0.102/barrel
0.015/Mcf (thousand cubic feet)
Average price (2012)
$43.34/ton
$95.55/barrel
$3.20/Mcf
Carbon tax amount per unit of fuel:
$10/ton of carbon
$5.74/ton
$1.02/barrel
$0.15/Mcf
$100/ton of carbon
$57.42/ton
$10.15/barrel
$1.49/Mcf
$200/ton of carbon
$114.85/ton
$20.31/barrel
$2.98/Mcf
Carbon tax as a percent of fuel price:
13% 1% 5%
132%
11%
47%
265%
21%
93%
Carbon taxes will affect the prices of fuels differently. The most strongly affected is coal; a $100/ton carbon tax would more than double the price of coal, while increasing the price of oil by about 11%. The larger relative effect on natural gas is a result of low prices for natural gas in 2012; the carbon content of natural gas is lower that that of coal and oil.
Source: Carbon emissions calculated from carbon coefficients and thermal conversion factors available from the U.S. Department of Energy. Oil price is August 2012 world average. Natural gas price is August 2012 average U.S. wellhead price. Coal price is August 2012 U.S. average over 5 different types of coal. All price data from the U.S. Energy Information Administration.
Note: Btu = British thermal unit.

4. Figure 19.1: Gasoline Price versus Consumption In Industrial Countries
Turkey
Luxembourg
Europe
Iceland
New Zealand
The effect of price on consumption is clearly shown in a cross-country comparison of gasoline prices and per capita gasoline consumption. The U.S., with relatively low gasoline prices, has per capita consumption about four times as high as most European countries. Other factors (such as longer driving distances in the U.S.) could play a role, but the impact of price is clearly very great. Price affects both short-term decisions about how much to drive, and longer-term decisions like how fuel-efficient a car to buy, as well as national policy decisions like investment in public transit and rail systems.
Sources: GTZ, 2009; U.S. Energy Information Administration database.
Note: Shaded area represents price/consumption range typical of West European countries.

5. Figure 19.2: Determination of Carbon Permit Price
Demand for Permits (WTP) $
Quantity of Permits P*
Supply of Permits Q0 •
A tradable-permit system for carbon allows the market to set a carbon price based on the overall emissions reduction set through the permit allocation system. If Q0 permits are issued, the market price of a permit will be P*, based on the marginal net benefit of carbon-based fuels to purchasers. The effect is similar to a carbon tax, but the government may or may not receive revenues depending on whether permits are allocated for free (“grandfathering”) or are auctioned off.

6. Figure 19.3: Carbon Reduction Options with a Permit System
Marginal cost of carbon reduction by plant replacement
Marginal cost of carbon reduction by energy efficiency
Marginal cost of carbon reduction by forest expansion P*
Once a carbon permit price is established, market participants will seek out least-cost methods for carbon reduction. Current carbon emitters can save on permits by reducing their emissions, or they may purchase permits from other firms who reduce emissions. If the system includes “offsets”, participants who can achieve carbon storage (for example, through certain agricultural techniques or forestry) can sell permits to carbon emitters.
QPR
QEE
QFE
Units of carbon reduced by plant replacement
Units of carbon reduced by energy efficiency
Units of carbon reduced by forest expansion
Note: Marginal costs shown here are hypothetical.

7. Figure 19.4: Climate Stabilization Wedges16
8 wedges
are needed to
build the
stabilization
triangle
Emissions-doubling path
Stabilization
Triangle
1 wedge
avoids
1 billion tons of
carbon emissions
per year by 2055
Each climate stabilization “wedge” represents 1 billion tons of avoided carbon emissions. 8 wedges are needed to stabilized emissions through 2050, and more would be needed to achieve emissions reduction. (These figures are for global emissions).
1 “wedge” 8
2000
2050
Source: Pacala and Socolow, 2004.

8. Figure 19.5: Global Greenhouse Gas Abatement Cost Curve to 2030
-50
-100
-150 50
100 5 10 15 20 25
Building Insulation
Fuel efficiency in commercial vehicles
Lighting systems
Air conditioning
Water heating
Fuel efficiency in non-commercial vehicles
Sugarcane biofuel
Standby losses
Nuclear
Livestock
Low-cost forestation
CCS, enhanced oil recovery, new coal
Wind; low penetration
Industrial feedstock substitution
Cofiring biomass
Medium-cost forestation
Carbon capture and storage (CCS); new coal
Avoided deforestation
Industrial motor systems
CCS; coal retrofit
Coal-to-gas shift
Waste
Biodiesel
Industrial CCS
Billion Tons CO2 Equivalent
Euros / Ton
The costs of reducing emissions are shown on the vertical axis, with the amount of potential reduction measured on the horizontal axis. Not that up to 5 billion tons of emissions reductions can be achieved at negative costs, or net economic savings, primarily by increasing energy systems efficiency. Another 20 billion tons of reductions can be achieved at costs of less than 40 euros per ton (about $52/ton).
Source: McKinsey & Company, 2007.

9. Figure 19.6: Progress Toward Meeting Kyoto Protocol Targets, Select Countries, as of 201060 40 20
-20
-40
-60
Percent Change
Base Year to 2010 Change
Kyoto Target
Russia
United Kingdom
Germany
France
Italy
Japan
United States
Australia
Sweden
Spain
Canada
Progress towards meeting Kyoto Protocol reduction targets was limited as of The United States, Australia, Canada and some other developed countries failed to meet their targets. While the overall Kyoto target of a 5% reduction below base year (1990) levels by industrialized countries appeared to be on track, this was largely due to very dramatic reductions in Russia resulting from economic collapse in the early 1990s rather than from deliberate policy.
Source: UNFCCC greenhouse gas data from
Note: Includes land use and forestry adjustments.

10. Table 19.3: Important Events in International Climate Change Negotiations
Year, Location
Outcome
1992, Rio de Janeiro
Negotiations start with completion of UN Framework Convention on Climate Change (UNFCCC). Countries agree to voluntarily reduce emissions with “common but differentiated responsibilities.”
1995, Berlin
The first annual Conference of the Parties to the framework, known as a COP. United States agrees to exempt developing countries from binding obligations.
1997, Kyoto
COP-3 diplomats approve the Kyoto Protocol. Mandates developed countries to cut greenhouse gas emissions relative to baseline emissions by period.
2000, The Hague
Outgoing Clinton administration and Europeans differ on some COP-6 terms, mainly over credit for carbon sinks such as agriculture and forests. Talks collapse.
2001, Bonn
An second session of the COP-6 talks works out terms for compliance and financing. However, by this time the Bush administration had rejected the Kyoto Protocol and the United States was only an observer to the talks.
2004, Buenos Aires
United States blocks formal negotiations on post-Kyoto treaty. COP-10 diplomats try informal talks.
2007, Bali
COP-13 diplomats approve schedule for post-Kyoto negotiations to end in This time the United States cooperates as presidential candidates appear supportive of climate change policies.
2009, Copenhagen
COP-15 fails to produce a binding post-Kyoto agreement. Instead, the Copenhagen Accord declares the importance of limiting warming to under 2°C , yet  without any binding targets. Developed countries pledge to provide financing to developing countries of $30 billion annually, rising to $100 billion by 2020.
2010, Cancun
Nations meet to work out details of the “Green Climate Fund” agreed to in Copenhagen. The framework is set for a possible new binding treaty in 2011.
2011, Durban
COP-17 participating countries agreed to adopt a universal legal agreement on climate change as soon as possible, and no later than 2015, to take effect by 2020.
2012, Doha
Approved an extension of the Kyoto Protocol until 2020, but developing nations, as well as Japan, Russia, Canada, the United States, and other developed nations refuse to participate. Little progress is made toward securing funding for the Green Climate Fund.
Climate change negotiations have involved many global meetings, but limited progress. Recent meetings have had trouble achieving any agreement on a successor to the Kyoto protocol, due to disagreements between developed and developing nations over the allocation of emissions reductions.

11. Table 19.4: A Distributionally-Neutral Carbon Tax in the United States
Income decile
Change in annual household income
Average cost of the carbon tax
Average payroll tax credit
Net impact (dollars)
Net impact (as a percentage of income)
1 (lowest)
–$276
$208
–$68
–0.7% 2
–$404
$284
–$120
–1.0% 3
–$485
$428
–$57
–0.2% 4
–$551
$557
+$6
+0.1% 5
–$642
$668
+$26 6
–$691
$805
+$115
+0.3% 7
–$781
$915
+$135
+0.2% 8
–$883
$982
+$99 9
–$965
$1,035
+$70
+0.0%
10 (highest)
–$1,224
$1,093
–$130
–0.0%
If a U.S. carbon tax is offset by a reduction in the payroll tax, the effects on income distribution are relatively small. Only minor adjustments would be needed to render the effect completely neutral, or slightly beneficial to lower-income groups.
Source: Metcalf, 2007.

12. Table 19.5: Average Impacts of an Earth Atmospheric Trust, Select Countries
Country
GDP per capita (2011)
CO2 Emissions per capita (tons)
Cost of carbon price per capita ($80/ton)
Net effect after annual payment of $274
Brazil
$12,594
2.3
$184
+$90
China
$5,430
6.3
$504
-$230
France
$42,377
6.2
$496
-$222
Germany
$43,689
9.6
$768
-$494
India
$1,489
1.4
$112
+$162
Mexico
$10,064
4.0
$320
-$46
Russia
$13,089
11.7
$938
-$662
Turkey
$10,498
3.4
$272
+$2
Uganda
$487
0.1 $8
+$266
United States
$48,442
18.1
$1,448
-$1,174
On a global scale, the impact of a cap-and-trade system with per capita rebate would be a significant benefit to lower-income nations. The system generates $2.6 trillion in annual revenues. With ¼ of these revenues (about 1% of global GDP) dedicated to the costs of climate adaptation and mitigation, the remaining ¾ provides a per person payment of $274 – an income increase of 50% for poorer countries such as Uganda.
Sources: U.S. Energy Information Administration online database; World Bank, World Development Indicators online database
Note: GDP = gross domestic product.

13. Figure 19.7: Climate Change Capacity for China, Greenhouse Development Rights Framework20 40 60 80
100
Income percentile
Per capita income ($US PPP adjusted)
20,000
40,000
60,000
In the Greenhouse Development Rights (GDR) framework, only those with income above a “development threshold” of $7,500 per year are obliged to contribute to the costs of greenhouse gas mitigation and adaptation. The “capacity” of a country such as China to contribute is calculated based on the proportion of the population above this threshold – about 25% in China.
Source: Baer et al., 2008.
Note: PPP = Purchasing Power Parity.

14. Table 19.6: Responsibility Capacity Indices, Greenhouse Development Rights Framework, Select Countries/Regions (percent of global total)
Country or group
Population
Capacity
Responsibility
RCI
United States
4.5
29.7
36.4
33.1
EU-27
7.3
28.8
22.6
25.7
Japan
1.9
8.3
7.8
China
19.7
5.8
5.2
5.5
Russia
2.0
2.7
4.9
3.8
Brazil
2.9
2.3
1.1
1.7
Mexico
1.6
1.8
1.4
South Africa
0.7
0.6
1.3
1.0
India
17.2
0.3
0.5
Least-developed countries
11.7
0.1
0.04
In the GDR framework, “capacity” is balanced with “responsibility” in terms of cumulative greenhouse gas emissions since The “responsibility/capacity index” (RCI) represents each country’s obligation to contribute to financing policy responses. This system has been proposed, but never adopted, and it seems unlikely that such an agreement on sharing costs could be politically feasible. It may, however, provide some guidance for the structure of more limited agreements.
Source: Baer et al., 2008