1. Fourth Annual Conference on Global Economic Analysis Policy Panel I: Climate Change Policy Larry Williams EPRI Some Research Issues June 27, 2001

2. 4 th GEA-Purdue 2 Overview The easy stuff –Climate science –Policy proposals –Basic observations Open questions –Two studies underway through EMF-Stanford –International policy process in flux –Opportunity to rethink the issue –Introduce imperfections of real world –Uncertainty analysis

3. 4 th GEA-Purdue 3 Climate science The issue is real—won’t be going away First signs of human-caused climate change have likely occurred Further change appears inevitable Time scale is very long term –Not the next election cycle! Less certain about… –Where (regions of globe) –When (rate of change) –How much (magnitude)

4. 4 th GEA-Purdue 4 Ultimate goal is the stabilization of greenhouse gas concentrations in the atmosphere Initially called upon Annex I countries to take lead and aim to return emissions to 1990 levels by 2000 Calls for periodic reviews UN Framework Convention on Climate Change

5. 4 th GEA-Purdue 5 Basic Observations The Framework Convention deals with concentrations and NOT emissions Timing matters—a gradual energy transition will be cheaper than an abrupt transition Stabilization requires participation by the big emitters –Net emissions need to go to ZERO eventually Solution requires a portfolio of actions –No single magic solution Problem is real and will NOT go away on it’s own

6. 4 th GEA-Purdue 6 Policy Directions…? Kyoto Protocol as written (US inside) Kyoto  EU + Japan + Russia (US outside) Renew Negotiations –Revisit Kyoto ? –Revisit Rio ? Individual Nations take actions –Bilateral agreements –Permit trading slowly takes hold –Eventual convergence –Europe as laboratory experiment for GHG control

7. 4 th GEA-Purdue 7 Failure to agree at COP6 opens up research possibilities… Most recent climate policy research organized relative to the Kyoto Protocol Now is a good time to take broader focus –Rethink global problems related to Development, air and water pollution (and water scarcity) AND Climate jointly Stay tuned—new policies will be surfacing

8. 4 th GEA-Purdue 8 Research possibilities… “International Trade Dimensions of Climate Policy Analysis” –EMF18 (Stanford University) study underway to examine leakage effects and spill-over effects “Technology Strategies for Greenhouse Gas Mitigation” –EMF19 (Stanford University) study examines Alternative sets of technology assumptions and ways to represent technological progress Strong impact on cost estimates

9. 4 th GEA-Purdue 9 Research possibilities… Real policy implementations unlikely to be optimal –How much more costly will non-optimal be? Various forms of command and control Sector specific caps Upstream vs. downstream Various domestic burden sharing schemes –How will lack of harmony between domestic and international policies affect the costs?

10. 4 th GEA-Purdue 10 Research possibilities… More work on uncertainty analysis is needed –What are key uncertainties influencing future emissions Examine climate issue as risk management –Climate surprises –Action vs. inaction –Sequential policy proposals –Prudent risk management strategy