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Modeling the Economics of Greenhouse Gas Mitigation: Summary of a Workshop 6 Reflections on the Workshop The workshop closed with reflections from planning committee members John Weyant (chair), William Nordhaus, Karen Palmer, Rich Richels, and Steve Smith. Rich Richels began by making three points. His first point was that, in the short run, modelers need to be more transparent than they have been in the past and identify the assumptions that are driving the results. The second point was that we are dealing with a situation of “act and learn and then act again,” which raises the issue of the value of information. The third point was brought up by the discussion of offsets. Richels noted that offsets are characterized as an attempt by the government to contain costs. He pointed out, however, that the goal is not to drive down costs as far as possible; if that was the goal, then doing nothing would drive mitigation costs to zero. The goal is to create climate mitigation that is worth buying, and accomplishing that requires balancing costs incurred and damages avoided. It appears that the American public, in particular, is not ready to buy off on mitigation until it is clear what the value of mitigation might be. And the modeling community has not done a good job to date in explaining that. William Nordhaus first noted that, as someone who has been in the modeling community for an extended period of time, he is impressed with the quality of the analysis. However, the scale, and not just the gravity, of the problem is growing much more complex, as is the complexity of the policy analysis. Further, Nordhaus concluded that there needs to be much improvement in modeling technology, whether it is in models that are basically projections and forecast models or in story line/scenario models. Nordhaus also noted that modeling the behavioral elements in our energy systems has taken on a new respectability, and that this is a rich area for further research. His final point was related to what he termed “hopeless” modeling territory because of the need to model a complex economy, a complex energy system, and now a complex set of policy regimes. Nordhaus concluded that the idea of having a full-blown set of models that can predict how these systems will behave, particularly in their dynamic framework, is asking too much of the human mind. Nordhaus pointed out that there will be a lot of room for looking at how these new regimes behave and for fine-tuning them over time. Karen Palmer followed by noting that any domestic climate policy that the United States would adopt will have associated mechanisms such as standards and subsidies to encourage energy efficiency. She concluded that we need more research to identify and characterize the market or behavioral failures that contribute to the so-called efficiency gap, so that we have a better understanding of what an appropriate role for policy might be. On the flip side, we need to improve the state of the art in evaluating how energy efficiency policies work, especially approaches that account for behavior. Regarding offsets, Palmer noted that if retained, they could complement rather than substitute for a cost-containment mechanism like a price collar. This would be particularly true if the
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Modeling the Economics of Greenhouse Gas Mitigation: Summary of a Workshop cost of offsets is likely to be highest at the times when their use would be most valuable. Thus she advocated that more research on uncertainty be done, particularly if we are going to move forward with offsets. She noted that, as pointed out in the session on offsets, there can be many political and technical uncertainties associated with offsets. Steve Smith observed that although people might think that some of the more stringent climate targets are not realistic, to get even halfway to some of these targets will require a dramatic change from the historical trends in the energy system, which brings up a number of research questions. Smith noted that in the past energy-related technologies changed largely through market forces interacting with regulations. The scale and timing of the changes that are now contemplated are difficult to achieve in the real world, but the models represent that these changes occur very easily. Further, it was mentioned that the models tend to know prices but not costs. Smith noted that it is very difficult to pin down the costs for even some current technologies that are not mass-market technologies. A major research question for improving confidence is thus, When there are new technologies on the market that governments may be investing in, how do we make sure that we can be confident about the costs and performance of these new technologies? John Weyant had two general reflections. The first was that he had expected a lot more discussion in the four different sessions about a “half-empty” glass and the approaches in all four areas being hopelessly misguided. Based on what he heard, he concluded that there is a lot to build on. Weyant’s second point concerned the desire to get all the “margins to line up perfectly” and to never depart from that world, which he regarded as a good discipline to impose. But Weyant noted that if we are looking for ways forward and barriers to break down and industries to reorganize and behavioral challenges to meet and regulations to reform, we have to go out for a while and develop the obvious energy efficiency programs that everyone would agree would pay off.
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