Climate Policy Blog

The Intergovernmental Panel on Climate Change released Working Group III’s (WG-III) contribution to the Fourth Assessment Report, “Mitigation of Climate Change,” earlier this month with the Summary for Policymakers and the pre-copy edit chapters. The House Committee on Science and Technology held a hearing last week with four WG-III lead authors. Let me address some questions policymakers may have about climate change policy and how the IPCC WG-III report addresses them.

How should we choose a goal?

Unfortunately, the Summary for Policymakers does not provide much useful information to guide the identification of near-term or long-term climate policy goals. Tables 4 and 6 of the Summary provide a range of GDP loss estimates for three broad ranges of goals to stabilize atmospheric greenhouse gas concentrations: 590-710 parts per million (ppm) CO2 equivalent, 535-590 ppm, and 445-535 ppm. Drawing from a large set of models, the ranges of costs for these goals are overlapping. For models that have evaluated a wide array of goals, there is a fairly robust conclusion: moving from a 650 ppm to a 550 ppm goal increases costs somewhat, but moving from a 550 ppm to a 450 ppm goal raises costs dramatically. For example, refer to the December draft analysis of long-term stabilization scenarios, based on three models frequently cited in this IPCC report, sponsored by the U.S. Climate Change Science Program (Tables ES.3 and 4.9).

Will mitigating emissions cause a recession?

The IPCC reports that a stabilization goal in the 445-535 ppm range could result in a 3% reduction in GDP in 2030. Would this cause a recession? Jim Connaughton, Chairman of the White House Council on Environmental Quality, expressed such a concern in a May 4 press conference and quoted in the Washington Post: “GDP ranges as high as 3% to achieve certain scenarios – well, that would, of course, cause a global recession.” Of course it would not. The IPCC’s 3% figure is for the year 2030 relative to forecast economic growth. 3% lower economic output in 2030 corresponds to the global economy growing 0.12% slower each year through 2030. Suppose the U.S. economy grew 0.12% slower each year. The U.S. economy would have grown 3.14% instead of 3.26% in 2006. Or in 2030, the U.S. economy would only be 1.97 times larger than it is today instead of 2.04 times larger without any emissions mitigation policies. U.S. per capita income, with this 3% loss in GDP, would still be more than $20,000 higher in 2030 than the current value of about $38,000. The vast economic literature does not support the idea that climate change policy will cause a recession or a return to the oil shocks of the 1970s. (Refer to this backgrounder for an overview of recent modeling analyses of U.S. cap-and-trade proposals.)

How can we design a suite of policies to minimize the cost of mitigating emissions?

The IPCC report makes a strong case for putting a price on the emissions of greenhouse gases through emissions trading or an emissions tax. This creates the incentive for firms and individuals to alter their consumption and investment decisions in favor of climate-friendly options. Emissions trading or a tax would reduce emissions at lower cost than other approaches, such as command-and-control regulations or subsidies. Covering as many sources as possible, including non-CO2 greenhouse gases and carbon sinks can also lower costs. Using the revenues from an emissions tax or an auction of tradable permits to lower existing taxes on labor and capital can also reduce the costs to the economy.

A note of caution. The Summary also describes so-called “market barriers”, that if removed, could result in more emissions abatement at negative costs. The Summary identifies several examples of market barriers, including “consumer preferences,” “availability of technologies,” and “higher costs of reliable information.” It’s not clear that government should be in the job of changing consumer preferences (or has the capacity to do so), and changing the suite of technologies and providing reliable information will incur real costs – and such costs are often neglected in the types of analyses that show negative costs.

What is required, from a policy standpoint, to achieve the emissions abatement described in the Summary for Policymakers?

The Summary identifies the potential for reducing greenhouse gas emissions 25-50% in 2030 with a global carbon price of $100 per ton of CO2 equivalent. The key term in this sentence is “global carbon price.” To achieve anything approaching the scale of reductions envisioned by the modeling results reported in the Summary, a credible international climate change policy architecture will be required. This is the critical challenge: engaging the largest emitters in the world – including the U.S., China, and India – so that such emissions abatement is feasible. Without some of these countries, the cost of ambitious abatement goals could be considerably higher.

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