ASSESSING ECONOMIC IMPACTS OF GREENHOUSE GAS MITIGATION

SUMMARY OF A WORKSHOP

Derek Vollmer, Rapporteur

Board on Energy and Environmental Systems

Division on Engineering and Physical Sciences

NATIONAL RESEARCH COUNCIL OF THE NATIONAL ACADEMIES

THE NATIONAL ACADEMIES PRESS

Washington, D.C.
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Derek Vollmer, Rapporteur Board on Energy and Environmental Systems Division on Engineering and Physical Sciences

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THE NATIONAL ACADEMIES PRESS 500 Fifth Street, N.W. Washington, D.C. 20001 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. This study was supported by funding from the U.S. Department of Energy under contract DE-AM01- 04PI45013/DE-DT0000010/002, and the Alfred P. Sloan Foundation. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the organizations or agencies that provided support for the project. International Standard Book Number-13: 978-0-309-12700-4 International Standard Book Number-10: 0-309-12700-9 Limited copies of this report are available from: Board on Energy and Environmental Systems National Research Council 500 Fifth Street, NW, Keck 934 Washington, DC 20001 (202) 334-3344 Additional copies of this report are available from the National Academies Press, 500 Fifth Street, N.W., Lockbox 285, Washington, DC 20055; (800) 624-6242 or (202) 334-3313 (in the Washington metropolitan area); Internet, http://www.nap.edu. Copyright 2009 by the National Academy of Sciences. All rights reserved. Printed in the United States of America

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The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Charles M. Vest is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M. Vest are chair and vice chair, respectively, of the National Research Council. www.national-academies.org

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PLANNING COMMITTEE FOR THE WORKSHOP ON ASSESSING ECONOMIC IMPACTS OF GREENHOUSE GAS MITIGATION RICHARD NEWELL, Duke University, Chair MARILYN BROWN, Georgia Institute of Technology PAUL JOSKOW, Alfred P. Sloan Foundation JOHN WEYANT, Stanford University Project Staff JAMES ZUCCHETTO, Director, Board on Energy and Environmental Systems DEREK VOLLMER, Associate Program Officer, Science and Technology for Sustainability Program E. JONATHAN YANGER, Senior Program Assistant, Board on Energy and Environmental Systems iv

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BOARD ON ENERGY AND ENVIRONMENTAL SYSTEMS DOUGLAS M. CHAPIN, NAE,1 MPR Associates, Inc., Alexandria, Virginia, Chair ROBERT FRI, Resources for the Future, Vice Chair RAKESH AGRAWAL, NAE, Purdue University ALLEN J. BARD, NAS,2 University of Texas, Austin WILLIAM F. BANHOLZER, NAE, The Dow Chemical Company ANDREW BROWN, JR., NAE, University of Texas MARILYN BROWN, Georgia Institute of Technology MICHAEL CORRADINI, NAE, University of Wisconsin, Madison PAUL A. DECOTIS, Office of the Governor, New York E. LINN DRAPER JR., NAE, American Electric Power, Inc. (emeritus) CHARLES H. GOODMAN, Southern Company (retired) SHERRI GOODMAN, CAN, Alexandria, Virginia NARAIN HINGORANI, NAE, Independent Consultant, Los Altos Hills, California JAMES J. MARKOWSKY, NAE, Independent Consultant, North Falmouth, Massachusetts WILLIAM F. POWERS, NAE, Ford Motor Company (retired) MICHAEL P. RAMAGE, NAE, ExxonMobil Research and Engineering Company (retired) DAN REICHER, Google.org MAXINE L. SAVITZ, NAE, Honeywell, Inc. (retired) MARK H. THIEMENS, NAS, University of California, San Diego SCOTT W. TINKER, University of Texas, Austin Staff JAMES J. ZUCCHETTO, Director ALAN CRANE, Senior Program Officer MADELINE WOODRUFF, Senior Program Officer K. JOHN HOLMES, Senior Program Officer DUNCAN BROWN, Senior Program Officer DANA CAINES, Financial Associate LANITA JONES, Program Associate JASON ORTEGO, Senior Project Assistant JONATHAN YANGER, Senior Project Assistant 1 NAE, National Academy of Engineering. 2 NAS, National Academy of Sciences. v

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Preface The workshop on Assessing Economic Impacts of Greenhouse Gas Mitigation was motivated by recognition of the need for improved analytical capabilities and tools for developing policies to address greenhouse gas mitigation and climate change. Various models and tools exist and are in use, but as climate science advances and new questions arise regarding the economic consequences of action (or inaction), there will be a need for analysis that can provide rich detail, communicate sector- and region- specific impacts, and reflect the myriad uncertainties embedded in technological change, nonlinear processes, and global involvement. This workshop represented an effort to engage leaders from the policy, economic, and analytical communities to help “define the frontier” and provide insight into the opportunities for enhancing existing capabilities to assess economic impacts. This workshop summary follows the general issue areas discussed at the workshop. After a brief introduction, it summarizes the main themes from each panel and the resultant discussions. The workshop was open to the public, and thus the summary reflects the presentations of invited panelists as well as the issues raised by audience members. This summary does not include any consensus views of the participants or the planning committee, does not contain any conclusions or recommendations on the part of the National Research Council, and does not contain any advice to the government, nor does it represent a viewpoint of the National Academies or any of its constituent units. No priorities are implied by the order in which ideas are presented. This workshop was organized by a planning committee of experts who played an integral role in developing an agenda, identifying speakers and participants, and moderating discussions during the workshop. I extend sincere thanks to Richard Newell, Marilyn Brown, Paul Joskow, and John Weyant for their contributions in scoping, developing, and carrying out this project. Panelists and audience members all contributed to a day and a half of stimulating discussion that this workshop summary strives to reflect clearly. Jim Zucchetto and Peter Blair of the Division on Engineering and Physical Sciences provided valuable program direction for this project, for which I am grateful. Jonathan Yanger also deserves special recognition for his program support on this project. This workshop would not have been possible without the financial support of its sponsors: the U.S. Department of Energy’s Office of Policy and International Affairs, and the Alfred P. Sloan Foundation. Inja Paik and Bob Marlay of the Department of Energy provided useful input to the planning committee, which helped it to develop a workshop that was both timely and valuable to the various policy, economic, and analytic communities engaged in the many aspects of greenhouse gas mitigation. This workshop summary has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the National Research Council’s Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards for quality and objectivity. The review comments and draft manuscript remain confidential to protect the integrity of the review process. We wish to thank the following individuals for their review of this workshop summary: Jay Braitsch, U.S. Department of Energy; Jae Edmonds, Pacific Northwest National Laboratory; Mun Ho, Harvard University; Adele Morris, the Brookings Institution; and Richard Richels, Electric Power Research Institute. vii

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Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the content of the summary, nor did they see the final draft of the report before its release. Responsibility for the final content of this report rests entirely with the author and the institution. Derek Vollmer Rapporteur viii

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Contents 1 INTRODUCTION 1 2 POLICYMAKERS’ INFORMATIONAL NEEDS 3 3 MODELS AND ANALYTICAL APPROACHES 8 4 ECONOMIC CONSIDERATIONS 15 5 ENHANCING ANALYTICAL CAPABILITIES 20 SELECT BIBLIOGRAPHY 28 APPENDIXES A Workshop Agenda 33 B Speaker and Panelist Biographical Information 36 ix

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