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Representative terms from entire chapter:
greenhouse warming
Page 171
20
A Framework for Evaluating Mitigation Options
To devise a coherent strategy for mitigation of greenhouse
warming, it is necessary to have an analytical framework that
compares the alternatives available. This chapter develops such a
framework and discusses a number of issues that arise in the
development of a plan to respond to the potential effects of
greenhouse warming.
Economics and engineering are central to the comparison of
alternatives. The connections between human activities and their
environmental consequences are technological in character;
engineering is consequently required to imagine, design, and
implement alternatives. Economic concepts are central to choosing
among the technically feasible alternatives. A variety of social
and cultural factors are also important in the interactions of
humans with their physical environment, but these are not the
primary focus of this inquiry.
The chain of causation from human activities, to the release of
greenhouse gases, to changes in the composition of the atmosphere,
and to climate change is long, often indirect, and complex. For
this reason, estimating the relationship between human activities
affected by policies or shifts in markets and far-removed changes
in climate is a difficult technical task. Indeed, the very human
difficulty of perceiving this indirect and long-term relationship
is an important component of the problem of greenhouse warming.
It is easier to see the direct costs of decreasing CO2 emissions than to estimate the benefits
of doing so. There is, accordingly, an emphasis in this report on
the direct costs of change rather than on the potential benefits
and secondary costs of changing. Readers should bear in mind that
the picture presented by the panel is skewed in this respect.
Even if the relation between human activity and climate change
were
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readily quantifiable, there would still be the matter of
selecting the most effective, least costly response strategies.
Here economic concepts are central. Proposed responses to
greenhouse warming include ideas that would affect national
economies, international trade, and the life-styles of people in
both developing and industrialized societies. Moreover, selecting
some of these alternatives would mean that other highly valued
objectives—such as improving economic status or national
security—would have to be altered. Making choices in the face
of scarcity—the problem at the heart of economic
science—is inescapable.
Much of this chapter is devoted to explaining the difficulties
of carrying out a conceptually straightforward approach. There are
three critical problems: (1) markets are imperfect—that is,
neither the prices observed nor the responses of markets are the
simple result of demand and supply operating unimpeded; (2)
uncertainties abound in the technical realm, in social responses to
policy instruments, in environmental changes due to changing
climate, and in markets; and (3) consideration of most alternatives
requires comparing costs and benefits at different times, paid for
or enjoyed by different people.
Although it has been possible to assemble an overview of the
options for mitigating greenhouse warming, the panel urges readers
to bear in mind the formidable problems of theory and practice
limiting the precision of the estimates that can be provided at
this time and even the qualitative accuracy of the picture that can
be presented.
Background
Greenhouse warming is a phenomenon of the atmosphere, taking
place in a global "commons." Similar emissions of greenhouse gases
have similar potential to affect global climate, regardless of
their country of origin. Thus mitigation strategies must be global
in scope, at least implicitly involving both developed and
developing countries. Indeed, many of the lowest-cost mitigation
options may be found at first in some of the poorest developing
countries. For example, the efficiency of wood-burning cookstoves
can potentially be raised at very low cost (Reid, 1989). Because
these countries may be unwilling or unable to afford such policies,
the developed countries may choose to underwirte such efforts. This
targeted redistribution of economic resources could be efficient
and less costly to the developed countries than mitigation
strategies directed solely toward their domestic economies.
Because of the limited availability of information on a global
basis, however, and the scope of the panel's responsibilities, the
analysis of mitigation options in the chapters that follow is
devoted largely to the United States. With a few exceptions,
information on mitigation costs and estimates of
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mitigation potential are derived entirely from U.S. experience
and data. Similar analyses should be effected for other countries.
Indeed, the analytical framework used in this report is generally
applicable to the analysis of mitigation options in a global
context.
The Role of Cost-Effectiveness
Principal among the objectives of policymakers in designing a
mitigation strategy should be to minimize the adverse effects of
mitigation on the domestic or world economy. This requires
designing a strategy that is "cost-effective"—one in which the
incremental costs of reducing radiative forcing are minimized.
Because the cost per unit of mitigation for most options is not
likely to be constant over the entire range of measures, estimates
of incremental cost per unit of mitigation will depend on the
degree of mitigation obtained, and may rise rapidly as measures are
used more intensively. In this report, all cost estimates are based
on changes from current levels of emissions, although in many cases
these cost estimates are for substantial increments of potential
mitigation.
The cost of mitigation may include a number of components, some
of which are difficult to measure. First, there are direct
expenditures, such as the increased cost of chemical substitutes
for CFCs; these costs reduce CFC concentrations below what they
would otherwise be and do so promptly. Direct expenditures can be
measured readily when market transactions are available to provide
data on the prices consumers pay for the benefits of these
expenditures. Second, there are investments whose benefits are
delayed. For example, higher energy efficiency in an industrial
facility will return benefits in the form of reduced emissions of
greenhouse gases and energy costs as the facility reduces its
energy consumption over the life of the plant. In estimating the
value of a stream of benefits and costs over time, a discount rate
(interest rate) is used to compute the present value equivalent in
order to compare alternative investments. Third, there are implicit
costs and benefits in substitutions among final goods or services
that imply different levels of greenhouse gas emission. For
example, inducing urban commuters to switch from automobiles to
mass transit would reduce an important source of greenhouse gas
emissions. Yet experience in the United States suggests that such a
switch would not occur at the energy prices observed in recent
time. If changes in government policy are necessary to change
behavior, however, the social cost would include the net loss in
value to consumers of changes in their behavior that would not have
occurred without changes in policy. That cost is difficult to
measure because there is no market transaction that directly
reflects such changes in value to customers.
Because most of the mitigation options discussed in this report
involve a
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reduction in energy consumption, there may also be reductions in
other undesirable externalities of energy production. The social
and economic costs of these reductions in energy consumption may
even be outweighed by their benefits. For example, the decision to
limit highway speed to 55 miles per hour (mph) in the 1970s and
1980s reduced traffic fatalities considerably. In principle, these
reductions in externalities should be deducted from the direct and
indirect costs of mitigation. Where possible, these favorable
offsetting effects are identified in the chapters that follow;
however, they are not generally quantified and applied as offsets
to the estimates of cost per unit of mitigation. Of course, many of
the issues bear on societal and individual preferences having
components that extend beyond quantifiable costs.
Energy Modeling
The scope of the task of cost-effective choice can be seen
through a review of the work done to date by economists who have
estimated the costs and, less often, the benefits of mitigating
greenhouse warming. There have been relatively few attempts to
estimate these costs by energy modeling. In energy modeling the
energy sector of the economy is represented in terms of
technological activities such as space heating or transportation
services. By using a mathematical programming or other algorithm,
the models then solve for the "optimal" trajectory of prices,
output, fuel mix, and technologies. It can be shown that, under
certain conditions, the optimal trajectory would correspond to the
outcome of perfectly competitive markets. (See Appendix R for more
details.) Recently, a few economists have begun to work on
estimating the costs and benefits of various CO2 reduction scenarios in this way. Most of
these modeling exercises are still in rather preliminary form.
A major problem in measuring the costs of reducing emissions of
greenhouse gases lies in establishing the baseline from which these
reductions are to be measured. If the object is to measure the
costs of restricting CO2 emissions
by some year, such as 2030, to some percentage of current
emissions, it is necessary to begin by predicting unconstrained
emissions for 2030. The costs of limiting CO2 will then be dependent on the
assumptions made about economic and population growth until that
date; the prices of oil, natural gas, and coal; technological
changes in energy-using industries; and numerous other parameters
that drive emissions in the unconstrained baseline scenario.
A simpler approach is to estimate the cost of reducing CO2 from current emission levels. This
procedure eliminates the necessity for predicting unconstrained
CO2 emissions in some future year,
but it does not provide estimates of the cost of restricting future
emissions to some fixed level.
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In either case, it is necessary for energy modelers to make
assumptions about the costs of certain activities at scales outside
recent experience or to predict technical change over some horizon.
The estimated costs of reforestation or ocean-modification options
are highly speculative. So are the estimates of additional costs of
technologies to replace current fossil-fuel-based electric power
generation. As a result, costs are usually estimated for various
scenarios of technical change. These scenarios include a range of
estimates of fuel prices, growth in gross national product (GNP),
and other parameters.
There are four relatively recent attempts to model the
prospective costs of CO2 reductions:
Nordhaus (1989), Manne and Richels (1990), Jorgenson and Wilcoxen
(1989), and Edmonds and Reilly (1983). These provide a perspective
on the current state of the art in modeling the cost of CO2 abatement. (Another review that reaches
similar conclusions in Darmstadter (1991).)
The Nordhaus Study
Nordhaus's work on global warming began in 1977. In recent
papers, he has presented the beginnings of a major modeling effort
designed to estimate the cost of controlling CO2 and other greenhouse gases, assuming
efficient markets and taking into account the costs and benefits of
various rates of abatement. As part of this exercise, he has
attempted to synthesize the results from eight studies of CO2 abatement, which draw upon data on
current practice and extrapolations into the future. A log-linear
ordinary least-squares regression is fitted to these estimates and
shown as a relation between CO2
reductions and a "tax rate" per ton of carbon at 1989 prices. This
tax rate purports to measure the minimum cost of reduction—an
estimate of the marginal cost for the whole economy of the most
efficient approach to CO2 reduction.
His results are shown in Figure 20.1.
Nordhaus also estimates the marginal costs of achieving
efficient reductions in greenhouse warming through reductions in
CFCs and through reforestation. He then combines the three cost
curves for CFCs, reforestation, and CO2 abatement into a single efficient
marginal cost curve for greenhouse gas reductions. These results
are shown in Figure 20.2 (The chart estimates, for example, that a
30 percent reduction of greenhouse gases would not be equivalent of
$150/t CO2 equivalent.)
Nordhaus's results on the costs of mitigation should be thought
of as his estimate of "the best we can do" to reduce carbon usage
at minimum cost, by using currently known technology or expert
estimates of the technology that can reasonably be expected to be
available. Because his model assumes the consumption of resources
at current levels and constant exponential growth of the economy
with this resource constraint, the resulting estimates
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FIGURE 20.1 The Nordhaus study of the marginal
cost of CO2 reduction. The symbols
refer to estimates from different models.
SOURCE: Nordhaus
(1990).
of mitigation costs must be viewed as tentative. Nordhaus
stresses that the actual costs of regulatory approaches are likely
to be higher, because government-mandated reductions in emissions
are likely to be less efficient than a carbon tax.
Analyses like Nordhaus's, however, implicitly ignore
institutional barriers that impede efficient economic adjustments
to change. Such barriers exist because information is imperfectly
distributed, there are regulatory restrictions on transactions, and
buyers or sellers can possess monopolistic control over markets.
For example, the adoption of such energy efficiency measures as the
installation of better-insulated windows suffers from several
impediments: homeowners are generally uninformed about many
possible efficiency measures, and building codes may not permit the
installation of windows that would be suitable. If existing
barriers to adaptation can be lowered, both buyers and sellers can
gain from the resulting transactions, which leads to estimates of
negative costs for some mitigation steps. That does not mean that
mitigation requires no monetary outlay: it is still
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FIGURE 20.2 The Nordhaus study of marginal cost
of greenhouse gas reduction.
SOURCE: Nordhaus
(1990).
generally an investment, requiring the commitment of capital. It
does mean that, relative to the present situation, everyone can
gain from lower barriers to adaptation. There is a strong case,
prima facie, for adopting suchpolicies, although experience over
the past decade suggests that resistance to doing so often
exists.
The Manne and Richels Study
Manne and Richels have built simulation models of CO2 reductions for the United States and for
the entire world. These models estimate the cost of various CO2 abatement scenarios from the present
through the twenty-first century and thus include forecasts of
economic growth, fuel prices, and new technology.
Manne and Richels examine the economic cost of holding carbon
emissions constant from 1990 to 2000 and then gradually reducing
these emissions to 80 percent of 1990 levels by 2020. Using a
discount rate of 5 percent, they estimate the present value of
aggregate loss to U.S. economic consumption due to this constraint
under a variety of scenarios concerning U.S. energy technology and
policy. The most restrictive and pessimistic
Page 178
scenario—one that assumes no autonomous improvements in
energy efficiency, no development of low-cost nuclear power, and no
cost-effective means of removing CO2
from utility waste gases—predicts very small reductions in
U.S. consumption until 2010, but sharply rising losses thereafter.
The discounted present value of U.S. consumption losses through
2100 is $3.6 trillion under this scenario, or about 1 year's
current consumption (i.e., less than 1 percent of total consumption
during the century). Using the most optimistic combination of
assumptions, Manne and Richels estimate that the present value of
the cost of the carbon emission reduction through 2100 would fall
to $0.8 trillion. In that case, technical progress in and wider use
of nuclear power, improved CO2
removal technology, and overall energy efficiency in the economy
could reduce the cost of mitigation by 78 percent in their
model.
It should be stressed that Manne and Richels's results depend
heavily on their assumptions concerning U.S. economic growth, world
fuel prices, and the prospects for technical progress in the energy
sector. They assume a substantial slowing of U.S. economic growth
from 3 percent annually in the period from 1990 to 2000 to only 1
percent annually in the last half of the twenty-first century, in
the absence of a carbon constraint. A higher rate of economic
growth would increase the estimated costs of a carbon constraint
substantially, but probably not proportionately with future
GNP.
Manne and Richels's estimate of the carbon tax required to
produce a 20 percent reduction in carbon (C) emissions, compared to
1990 rates, is shown in Figure 20.3. It shows the carbon tax rising
from nearly zero in 2000 to nearly $400/t C in 2010 and peaking at
about $600/t C in 2020.1 The tax
falls thereafter, presumably due to a slowing of economic growth
and the expansion of more efficient (lower emissions) energy supply
technology.
The Jorgenson and Wilcoxen Study
Jorgenson and Wilcoxen have built a long-term simulation model
of the U.S. economy to measure the effects of energy and
environmental policies on U.S. economic growth. Although this model
was not constructed with the goal of estimating the effects of
CO2 reductions, it can be used for
this purpose. Jorgenson and Wilcoxen's model is by far the most
disaggregated and complete model discussed here. It also has the
most sophisticated treatment of capital formation, an important
determinant of long-term economic growth.
Carbon dioxide emissions from fossil fuel consumption plus
cement manufacture were virtually the same in 1972 and 1987,
according to Jorgenson and Wilcoxen, in large part because of a
doubling of the relative price of oil between these two years. This
observation can be used to simulate the cost of a freeze on CO2 emissions, given the central role of
energy prices in the
Page 179
FIGURE 20.3 Manne and Richels's analysis of a
carbon tax.
SOURCE: Manne and
Richels (1990).
Jorgenson-Wilcoxen growth model. An analysis prepared by the
authors concludes that long-term growth of the gross domestic
product in the United States was reduced by about 1.3 percent per
year by the 1972–1987 doubling of oil prices (Jorgenson and
Wilcoxen, 1989).
None of the three energy models described above is likely to
provide precise estimates of the effects of a reduction in CO2 emissions in the next 30 years or
beyond. Nevertheless, they are quite helpful in judging the first
approximations of those effects. Of the models described,
Nordhaus's is the best for projecting the immediate costs of
reducing CO2 emission from any given
current level. Manne-Richels and Jorgenson-Wilcoxen provide
longer-term simulation models of the effect of energy-environment
policies, including the limitation of CO2 emissions.
The Edmonds and Reilly Study
The Edmonds and Reilly (1983) model analyzes long-term, global
emissions of CO2 by adopting a
simplified picture of an economy that generates CO2 from fossil fuel burning. Because it was
developed early in the current cycle of attention to greenhouse
warming, the model has been widely used (e.g., Lashof and Tirpak,
1991).
Page 180
The model divides the global economy into nine regions, each of
which is assumed to be a single market for energy. Six primary
energy categories, three of which emit CO2 in varying amounts per unit of energy
consumed, are analyzed. Demand for energy is driven by a simple
model of population, regional economic activity (GNPs), energy
productivity (a measure of the pace of technological change), and
taxes. Supply of energy is governed by regional resource
availability and economic descriptions of ''backstop" technologies
available within each region. (A backstop technology provides the
price at which unlimited quantities of energy are assumed to be
available from an inexhaustible resource; in general, the backstop
technology is more expensive than other resources currently
available from domestic production or international trade.)
Edmonds et al. (1986) discuss the behavior of this model when a
significant subset of those assumptions is systematically varied.
Projected CO2 emissions range from 5
to 20 Gt C/yr in the 400 scenarios examined. (These values cover
the span between the twenty-fifth and seventy-fifth percentiles of
the 400 scenarios.) Thus, by employing assumptions that are not
inconsistent with current estimates, this widely used model
projects a sizable uncertainty in CO2 emissions 60 years in the future,
ranging from values close to those emitted today to values 4 or
more times larger.
Problems in Comparing Options
The energy models described above yield results that appear to
be strikingly different from those presented in subsequent
chapters. For example, Figure 20.4 shows a curve for energy
efficiency (discussed in Chapter 21) that indicates that
significant amounts of carbon mitigation are available at
negative net costs ("net savings") to society. (Net costs in
Figure 20.4 are described in two ways: dollars per ton of CO2 saved; and costs per kilowatt-hour of
electricity needed to achieve those savings.) As shown on the
right-hand vertical scale, energy efficiency in the buildings
sector saves money because, although energy-efficient appliances
cost more than those currently in use, the additional cost (at a 6
percent real rate of interest) is less than the cost of the energy
saved. Compare Figure 20.2, which estimates the carbon tax required
to induce carbon emission reductions; that such a tax must be
imposed to reduce emissions of greenhouse gases means that there is
a positive net cost to society. Which perspective, if
either, is correct?
The answer lies in understanding the inherent limitations of
each approach with respect to the task of evaluating specific
mitigation options. Energy modeling, in its current state of
development, is limited in its ability to evaluate the direct
reduction or offset of greenhouse gas emissions achievable by
different options. The approach used in this study, which the
panel
Page 181
FIGURE 20.4 Technological costing analysis of
energy efficiency in the buildings sector.
calls "technological costing," is better suited to this task but
limited in its ability to assess overall consequences for the
economy. Several related problems are discussed below: (1)
deviations of real markets from the idealized bargaining assumed in
economic theory, (2) uncertainty, and (3) comparisons of current
costs with future benefits. These problems lead to the conclusion
that there is no single formula or method for choosing the best
alternatives, although comparisons among alternatives are necessary
to make informed and prudent decisions.
Page 190
on this and other key assumptions, it is possible to develop a
cost-effective portfolio of investments in mitigation (for a
similar application, see Northwest Power Planning Council,
1986).
Finding the least-cost mix of responses to greenhouse warming
entails comparing all the different mitigation responses. Figure
20.5 illustrates that the least-cost plan will probably involve a
mix of responses. For simplicity, only two hypothetical options are
plotted. They are shown as curves giving the cost for achieving
various reductions in greenhouse gas emissions (or the equivalent:
removal of greenhouse gases from the atmosphere, blocking of
incident radiation, or changing of the earth's reflectivity). For
comparability, all responses are translated into CO2-equivalent emissions.
Both options exhibit increasing cost for increasing reductions
in emission (the curves gradually bend upward). If the only
alternative were to achieve the desired level of reduction by
choosing one option, the clear preference would be the hypothetical
option B. Option B produces each level of reduction at lower cost
than option A.
FIGURE 20.5 A comparison of hypothetical
mitigation options. Curves show the costs of various
levels of reduction in CO2-equivalent emissions. Total costs for
the period of analysis are divided
by the number of years, and all comparisons over time are assumed
to be on the same basis. Both the
cost and potential emission reduction are converted to CO2 equivalents to allow comparison
across different mitigation options.
Page 191
Several analysts (Edmonds and Reilly, 1986; Nordhaus, 1990) have
pointed out the technical complications of making sensible
comparisons among different greenhouse gases. The cost of
reductions has been plotted along the vertical axis in terms of a
''levelized" cost (i.e., total cost over the period of analysis,
divided by the number of years). Responses to greenhouse warming
should be evaluated as investments, because the benefit that is
sought will generally take a long time to appear. Consequently, it
is important to compare costs over time, rather than simply in the
particular years in which expenditures are made. Discounting the
costs and benefits allows such a comparison. As discussed above,
the choice of discount rate influences the comparisons made.
Figure 20.6 extends the comparison to additional options with
different characteristics. Option C shows the "negative cost" or
net positive benefits, associated with achieving the initial
reductions in CO2 emissions. An
example is energy efficiency, such as variable speed motors or
compact fluorescent lighting. The cost of these measures would be
less than the cost
FIGURE 20.6 A comparison of multiple mitigation
options. Curves show the costs of various levels
of reduction in CO2-equivalent
emissions for four hypothetical mitigation options. Total costs for
the period
of analysis are divided by the number of years, and all
comparisons over time are assumed to be on the same
basis. Both the cost and the potential emission reduction are
converted to CO2 equivalents to
allow comparison across
different mitigation options.
Page 192
of adding electricity generating capacity if the conservation
measures were not implemented.
Option D illustrates a "backstop technology." A backstop
technology provides an unlimited amount of reduction at a fixed
cost. An example would be an abundant energy source that provides
electricity with no CO2 emissions at
all. Where a backstop technology exists, its cost sets a ceiling on
the investment in reducing emissions. Only options costing less
than D should be considered, no matter how much emission reduction
is desired.
The heavy line labeled S in Figure 20.6 shows the cost-effective
combination of options. Option C is selected up to the point at
which option B becomes more cost-effective. Option A is added when
it becomes cost-effective. S becomes horizontal when the cost
reaches that of the backstop technology.
As the comparison of curves A and B indicates, the
cost-effective portfolio contains a mix of alternatives. The level
of expenditures is established by governments, who are guided by
estimates of the benefits to be derived from mitigation, as well as
budgetary considerations, international commitments, and other
factors. The level of expenditure translates into a number of tons
of greenhouse gas reductions; the objective is to get the largest
reduction for that expenditure. This is shown by curve S in Figure
20.6, which outlines the mix of investments that produces any
specified reduction at the least cost. At the point labeled b, for
instance, all of the pairings from options B and C below the dashed
line have been obtained, and acquisition of the alternatives at the
bottom of curve A is beginning to be added. Additional savings from
options B and C would also be pursued as the level of spending
moves upward. (This discussion assumes that curves A through D
describe independent activities, so as to avoid double-counting of
savings. See Chapter 29 for an additional discussion of the problem
involved in double-counting.)
Curves A through C all reflect a conventional assumption: that
the cost of obtaining reductions in greenhouse gas generally
increases as the size of the reduction is increased. Note, however,
that curve C begins below zero. As discussed in Chapters 21, 22,
and 23, there may be options available that are of net benefit to
society even without accounting for the benefits of reduced
greenhouse warming. These include some energy efficiency measures,
such as variable speed motors or compact fluorescent lighting. As
mentioned above, these actions may be worth more to electric
utilities than the costs of producing and installing them because
the improved efficiency allows the electric utility to defer
expensive additions to generating capacity. In principle, they can
therefore be provided at no cost to the homeowner because they
reduce the total cost of serving that customer, provided the
utility can reap a reward on its investment in energy efficiency. A
substantial portion of the energy savings would reduce emissions of
CO2 while
Page 193
simultaneously producing economic benefits. There may be other
options available whose costs are lower than the cost of the energy
saved, even without placing a value on the reductions in greenhouse
gas emissions.
What prevents these measures from being taken now are lack of
information, inadequate economic incentives for utilities, high
discount rates for personal consumption, and resistance to changing
established methods. However, even technically feasible measures
that benefit the national economy as a whole may not benefit every
individual.
Research and development should both lower and flatten the
supply curves in Figure 20.6, reducing the cost of alternatives and
raising the scale at which they can be economically introduced.
Research and development here includes social experimentation in
areas such as mass transit, marketing of energy efficiency, and
planting of trees on residential property, where consumer behavior
has a substantial effect on the reductions achieved. More
generally, research affects uncertainty. Although the supply curves
in Figure 20.6 are drawn as lines, there is actually considerable
uncertainty about how much reduction is available and at what
price. The lines should be bands. The distinction between two
technologies may not be as clear in practice as shown for curves A
and B in Figure 20.6.
Timing of Mitigation Policy and
Transient Effects
As further described in Appendix B, another important
consideration in designing a mitigation policy is the timing and
targeting of mitigation activities so that they have the desired
impact on greenhouse warming. Therefore an important distinction to
make is that human activities affect both the stocks and the flows
of greenhouse gas emissions.
Greenhouse gas emissions occur in one time period, with some
portion of the emissions sequestered immediately by the natural
system (e.g., oceans) but with the remainder augmenting the much
larger stock in the atmosphere that has developed over geological
time due to the natural occurrence and long lifetime of many of
these gases.
The response of climate may depend in complicated ways on both
stock (atmospheric concentrations) and flow (emissions and
absorptions into oceans, plants, and other reservoirs). Changing
both—as is done in most mitigation approaches—may
therefore produce nonlinear effects. Lowering emissions by 10 Mt/yr
for 10 years may not have the same effect on greenhouse warming as
lowering the stock of greenhouse gases by 100 Mt in a single year.
This implies that different CO2
reduction patterns will have different effects on greenhouse
warming with time and thus different benefits.
Therefore, in evaluating a prospective mitigation measure, one
must examine the relationship between both the timing and duration
of its reduction in greenhouse gases and the policy outcome
desired.
Page 194
Not only are there nonlinear effects due to the response of the
natural environment, there also are important nonlinearities in
social dynamics. An important body of knowledge has been
accumulated on the reaction of various national economies to the
energy price shocks of the 1970s. This analysis suggests that
gradual change is likely to be significantly less costly than
sudden imposition of a carbon tax or any other policy instrument
designed to bring about a rapid change in CO2 emissions (Jorgenson and Wilcoxen,
1991). More generally, the transient effects of policy can
be a large fraction of the total impact of attempts to mitigate
greenhouse warming, particularly if the economic changes occur on a
time scale of a year or shorter.
Thus timing is an important policy consideration. Climate change
is a slow process in comparison with the rates of price
fluctuations or changes in the business cycle. To the extent that
institutions permit slow phasing in of policies such as carbon
taxes, gradual changes are likely to be less disruptive
economically.
Uncertainty and Choice of
Parameters
Uncertainty cannot be ignored in responding to greenhouse
warming. Errors of doing too much can be as consequential as errors
of doing too little; the error of trying to solve the wrong problem
is as likely as the error of failing to act. Above all, errors are
inevitable, whether one acts or not, but inevitable errors are also
occasions to learn. Therefore policy design that incorporates these
lessons of the past helps to increase the resilience of the
decision-making system and to foster future learning (Holling,
1978).
An initial step is to choose the range of parameters to be used
in the analysis. The case of discount rate has been discussed here
at some length, illustrating the social judgments at stake in
making these quantitative assumptions. Note that what is needed is
a range, rather than a single "best" value. If uncertainty cannot
be avoided, one needs to know what would happen under different
circumstances, so that serious errors can be forestalled and
affordable ones identified.
Therefore, as illustrated in Chapter 29, after using the best
information that the Mitigation Panel had available to evaluate the
cost-effectiveness and emission potential of the various mitigation
options at discount rates ranging from to 3 to 30 percent, the
panel used its judgment as shown in Figures 29.1 to 29.3 to provide
a range of values for the cost and potential of mitigation. This
process culminates in Figure 29.5, which shows two curves: one with
the highest cost and lowest emission reduction, the other with the
lowest cost and highest emission reduction. This technological
costing curve range is compared with the range developed using
energy modeling as an accuracy check.
Page 195
It is important to note that the mitigation options evaluated
are merely technical choices. It is the policy judgments that are
of instrumental importance, first, because a judgment of what to
study shapes the kinds of conclusions that can be reached
(Selznick, 1947; Kingdon, 1984) and, second, because governments
are likely to be held accountable for their actions, including
actions taken in analyzing large-scale changes. Both require
policy-level involvement, as well as competent technical
execution.
Because of this, the Mitigation Panel believes it is important
to also evaluate various policy instruments that can be used in
implementing the mitigation options. A list of some of the
alternatives that have been proposed appears in Table 20.1. The
list includes command-control instruments, economic incentives,
revenue-neutral incentives, information programs, and redefinition
of the mission and profits of utilities. The potential of these
policy options for reducing the barriers to implementing the
mitigation option is discussed in the evaluation of each
option.
Conclusions
The charge to the Mitigation Panel was to "examine the range of
policy interventions that might be employed to mitigate changes in
the earth's radiation balance, assessing these options in terms of
their expected impacts, costs, and, at least in qualitative terms,
their relative cost-effectiveness." In this chapter, the panel has
examined the two primary methods that can be used to evaluate
greenhouse gas mitigation options: technological costing and energy
modeling. While the energy modeling approach uses models that
predict society's responses based on past societal behavior,
technological costing attempts to determine the cost-effectiveness
and emission reduction potential of future behavior and
assumes that current public or private market imperfections can be
overcome. The panel believes that the technological costing
approach is better suited to evaluating the comparative advantages
and disadvantages of specific mitigation options because current
energy models do not have the spedicificity needed for such an
analysis. For example, they look at the impact of a given carbon
tax across the economy, but not the cost of specific methods for
responding to that tax. However, there are reasons to be skeptical
of the degree to which option-driven assessments can incorporate
social responses (including market responses) to alternative
courses of action. For example, although it is technically feasible
at some cost to replace all coal-fired plants with nuclear power
plants, social opposition to the installation of nuclear plants
could prevent the option from being implemented. Yet, because
energy modeling draws inferences from past behavior, the total cost
of a shift to nuclear power may be overestimated, if there were to
be widespread public reevaluation of the relative risks of climate
change and energy technology, and if
Page 196
TABLE 20.1 Potential Greenhouse Gas Mitigation
Instruments
I. Command-Control Instruments
A. Consumption
1. Bans on certain products (aerosol
hairsprays)
2. Quantitative limitations on certain
products (rationing during wartime)
3. Mandated consumption of certain products
or services (unleaded gasoline)
B. Production
1. Quotas on offending products (CFCs)
2. Quotas on products using offending
substances asbestos-product phaseouts)
C. Input choices in production
1. Mandated fuel efficiency (Corporate
Average Fuel Economy standards)
2. Durability standards (automobile bumper
standards)
3. Fuel mixture standards (gasohol?)
4. Land reforestation requirements
(strip-mining regulations)
D. Provisions of public services
1. Mass transit options
2. Acquisition of public lands
E. Standards for energy-efficient
buildings
II. Economic Incentives
A. Taxes on inputs
1. Carbon tax levied on fuels
2. Specific fuel taxes (gasoline, jet fuel,
etc.)
B. Taxes on outputs
1. Emission tax
2. Sales tax on products (gas-guzzler
tax)
C. Financial incentives
1. Research and development tax credit
2. Tax credits (or deductions) for improved
technologies
D. Transferable property rights
1. Tradeable emission reductions (offset,
SO2 abatement credits, CFC
permits)
2. Reforestation credits (proposed
less-developed country debt relief)
III. Revenue-Neutral Incentives
A. Gas-guzzler fee combined with gas-sipper
rebate for new cars
B. Fee rebates to create a market for low
emissions of NOx, hydrocarbons, and
particulates for new cars
C. Variable hookup fees for new
buildings
(Table 20.1 continued on page
197)
Page 197
(Table 20.1 continued from page
196)
IV. Information Programs
A. Provision of basic data
B. Provision of technological data
C. Transmission of economic signals
D. Technical assistance
V. Redefining the Mission and Profits of
Utilities
A. Incentives for utilities to invest in
conservation and share in the avoided cost
IV. Direct Actions
A. Direct government action (such as
carrying out geoengineering options)
investments in nuclear engineering were to produce technical
alternatives that were widely regarded as acceptable.
In conducting the analyses in subsequent chapters, the panel
used the best and most reliable information available. But because
more and better information is needed to determine the full social
costs of mitigating greenhouse warming, the analysis presented in
this report should be seen as a starting point on which future
assessments can build. Despite the uncertainties described in this
chapter, the components of a reasonable policy approach can be
inferred from the discussion above:
• Although U.S. national policy is important, it is not by
itself the determining factor in global greenhouse gas
emissions.
• There are likely to be substantial economic impacts from
controlling greenhouse gas emissions. Transient effects and
transaction costs are important and potentially large, but they are
highly uncertain, and methods for making usable predictions of
these dynamic effects do not exist.
• Mixed strategies, aimed at cost-effective reductions of
greenhouse gas emissions, are likely to be the best approach to
mitigation. The timing and precise design of such a mix of policies
are both significant and uncertain at present. It makes sense,
accordingly, to emphasize that set of policies that is
cost-effective.
• The ranking of options in terms of cost-effectiveness is
strongly dependent on the choice of discount rate and a variety of
uncertainties concerning technology, energy prices, and economic
growth.
• The substantial uncertainties in both science and social
science make errors inevitable. It is important, accordingly, to
shape policies that can be resilient and that foster learning.
Page 198
Note
1. Throughout this report, tons (t) are metric; 1 Mt = 1 megaton
= 1 million tons; and 1 Gt = 1 gigaton = 1 billion tons.
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