Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter.
Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.
OCR for page 27
4
Policy Framework
The previous chapter clearly points out gaps in our knowledge and un-
derstanding of key physical phenomena in greenhouse warming. Neverthe-
less, current scientific knowledge seems to indicate that unconstrained re-
leases of greenhouse gases from fossil fuel combustion and other sources
would ultimately cause climate change. There are no specific conclusions,
however, about the regional and local effects associated with increased at-
mospheric concentrations of greenhouse gases. Nor is there much indica-
tion about how rapidly the effects might emerge.
Our knowledge about other topics central to the analysis of the green-
house warming problem is at least as insecure. The number of analyses of
the overall impact on the economy of this country of greenhouse warming is
even smaller than the number of GCM runs simulating an equivalent dou-
bling of CO2. Economic experts differ in their assumptions about future
population and economic growth, technological change, and a host of other
factors. Because the economic models must project trends far into the
future, their results are likely to remain controversial.
How then, in the midst of this uncertainty, can we begin to evaluate
policy options? Several concepts that can help us in that task are presented
in the next two sections.
COMPARING MITIGATION AND ADAPTATION
Many different policies could be adopted in response to the prospect of
greenhouse warming. In order to evaluate these policy options, it is useful
to categorize them into three types:
27
OCR for page 28
28
POLICY IMPLICATIONS OF GREENHOUSE WARMING
1. Options that eliminate or reduce greenhouse gas emissions.
2. Options that"offset" emissions by removing greenhouse gases from
the atmosphere, by blocking incident solar radiation, or by altering the
reflection or absorption properties of the earth's surface.
3. Options that help human and ecologic systems adjust or adapt to new
climatic conditions and events.
In this report the first and second types of interventions are referred to as
"mitigation" since they can take effect prior to the onset of climate change
and slow its pace. Mitigation options are discussed in more detail in Chap-
ter 6. The third type of intervention is referred to as "adaptation" since its
effects come into play primarily after climate has changed. A fuller discus-
sion of adaptation appears in Chapter 5.
In comparing mitigation and adaptation, one consideration is whether a
given action will, in addition to providing adaptation or mitigation benefits,
also improve economic efficiency. Even progressive societies find much of
their economic activity falling short of demonstrated "best practice." New,
more efficient practices are being developed continually, but it takes time
for them to diffuse throughout the economy. There are many obstacles to
more rapid diffusion of better practice, including lack of information, insufficient
supply of components or products, political interests, inappropriate incentives,
and simple human inertia. In general, however, every society has many
opportunities to improve its overall situation by reducing the gap between
..
current practice and best practice. Many of the actions taken to deal with
potential greenhouse warming could also improve economic well-being be-
cause they are more efficient than prevailing practice. These options should
be distinguished from another class of actions: so-called "free-standing"
actions, which satisfy other social or environmental objectives (and may or
may not contribute to economic efficiency as such).
Figure 4.1 compares hypothetical mitigation and adaptation actions in
response to potential greenhouse warming. If climate change occurs, and
no mitigation or adaptation actions are undertaken, a substantial reduction
in real income is likely over time. Initially, mitigation is likely to reduce
real income more than either doing nothing or taking adaptation measures
as climatic changes emerge. Ultimately, however, mitigation actions could
result in higher real income than waiting and taking adaptation measures.
In this scenario, investing in mitigation reduces consumption now. but oro
~ ~. 1_ _ 17_ ~_ 1 , . .
-----I ~ ~~~ r~~
auras an In one future. ~xpena~ures on megaton options should
thus be seen as investments in the future.
Many combinations of mitigation and adaptation actions are possible.
Choosing the best mix of mitigation and adaptation strategies depends in
part on the discount rate applied to the investment. The higher the discount
rate, the greater the case for postponement of costly actions. Use of discount
rates is one way of assigning values to future outcomes.
OCR for page 29
POLICY FRAMEWORK
-
-
~-
TIME
29
_ No Climate Change, No Action
, ~ Mitigation to Avoid Adaptation
Adaptation, No Mitigation
Climate Change, No Action
FIGURE 4.1 Schematic comparison of mitigation and adaptation. The uppermost
curve plots world economic well-being, essentially the amount of real income available
for consumption, assuming that there is no climate change. The lowest curve plots
world economic well-being assuming that there is climate change and no actions are
taken either to prevent or to cope with those changes. Notice that the axes are not
defined quantitatively. Thus the curves are only relative, and this figure cannot be
used to estimate the amount of economic welfare lost by expenditures on mitigation.
Similarly, it cannot be used to estimate the time at which the return from expendi-
tures on mitigation would exceed the return from expenditures on adaptation.
ASSIGNING VALUES TO FUTURE OUTCOMES
Most people have a time preference for money. They would rather have,
for example, $100 to use today than $105 a year from now. Future costs
and benefits are usually transformed into their "present value" by using a
discount rate, which is similar to the interest on savings. Discount rates
enable current and future returns to be compared.
A central, and controversial, issue is which discount rate to use in weigh-
ing the relative advantages of present and future impacts and costs. There
are essentially three courses of action with regard to responding to potential
greenhouse warming: (1) we can invest resources now to slow greenhouse
gas emissions; (2) we can invest in other projects that might yield a higher
return; and (3) we can defer any kind of investment in the future in favor of
current consumption. Applying a discount rate near the yield on other
investments at least 10 percent per year in most countries, in real terms
OCR for page 30
30
POLICY IMPLICATIONS OF GREENTIO USE WARMING
in evaluating responses to greenhouse warming would lead to the conclusion
that our investment dollars could be most efficiently used in capital projects,
education, or other sectors. It suggests that we should not take costly, low-
payoff actions to reduce greenhouse gas emissions. High discount rates
place a low value on future outcomes. Applying a low discount rate to
greenhouse investment choices say, 3 percent per year would make investing
now to avoid greenhouse warming more attractive. But such a low discount
rate means that other investment opportunities have been exhausted or are
being ignored. It is likely that there will be more investment opportunities
with returns of greater than 3 percent than there are available funds. A low
discount rate on resources invested in response to potential climate change
is inconsistent with a high return on capital investment.
The panel makes no attempt to resolve this issue. This study uses rates
of 3, 6, and 10 percent in calculations to ensure that unique circumstances
that would alter assessment of the outcome are not overlooked. Because
consumers sometimes act in ways that indicate an even higher discount rate
in their purchases, a rate of 30 percent is also used in considering some
mitigation options. For the purposes of comparing options and arriving at
recommendations for action, the panel used a single real discount rate of
6 percent per year. Use of a 10 percent discount rate would decrease the
present value of the low-cost options but would not change their rankings.
A METHOD FOR COMPARING OPTIONS
Using the concepts described above, we can compare options by care-
fully enumerating the impacts of action and inaction and then trying to find
a course that minimizes the net costs of the impacts of mitigation and
adaptation.
More specifically, the anticipated consequences of greenhouse warming
(both adverse and beneficial) can be arrayed to produce a "damage function"
showing the anticipated costs and benefits associated with projected climatic
changes. The mitigation and adaptation options can be similarly arrayed
according to what they would cost and how effective they would be. A
well-designed response will involve balancing incremental impacts and costs.
A sensible policy requires that the level of action chosen be "cost-effective,"
which means that the total cost of attaining a level of reduction of climate
change should be minimized.
Ideally, the evaluation would consider the full costs associated with each
mitigation alternative. Called "full social cost pricing," such an analysis
would allocate to each option not only the costs of its development, construction,
operation, and decommissioning or disposal, but also those of environmen-
tal or health problems resulting from its use. Burning coal, for example,
not only emits greenhouse gases, but also contributes to a variety of health
OCR for page 31
POLICY FRAMEWORK
31
problems (for nearby residents as well as coal miners) and to environmental
problems such as acid rain. All these would be included in full social cost
pricing. A different example involves increasing automobile fuel efficiency
by reducing the size and weight of vehicles. Reducing vehicle size results
both in reduced emissions of greenhouse gases, a benefit, and in increased
likelihood of injury from collisions with larger vehicles, a cost. Ideally, all
costs and benefits would be considered.
In practice, such a framework can be used only in an approximate man-
ner. It is impossible to determine all of the costs of all options today, much
less of climatic changes that will not occur for 50 to 100 years. Many of
the important concerns are difficult to measure and are not fully captured in
prices or other market indicators. Nevertheless, the panel finds this conceptual
framework to be a constructive way to organize the evaluation of policy
options.
Assessing Mitigation Options
Most mitigation options considered here use currently available tech-
niques and equipment that could be installed within 10 years. Actions that
reduce or offset emissions of greenhouse gases or otherwise deal with greenhouse
warming are evaluated in terms of annualized costs and annualized reduction
of CO2 emissions. Options addressing greenhouse gases other than CO2 are
translated into the equivalent CO2 emissions. Annualized costs (or emissions)
are determined by estimating the total costs in constant dollars (or emissions
in CO2 equivalents of that option over its lifetime. This includes the so-
called "engineering" costs of construction, installation, operation, maintenance,
and decommissioning or disposal. The total discounted cost is divided by
the number of years the option is expected to last, resulting in the annualized
cost of that option. Annualized emission reductions are calculated in a
similar fashion.
The mitigation options in this menu are then ranked according to their
cost-effectiveness. Those achieving the reduction of CO2 or CO2-equivalent
emissions most cheaply are ranked highest. Finally, the overall potential of
each option is estimated because there are limits on how much can be
achieved with each option. For example, avoiding emissions by using
hydroelectric power generation might be comparatively cheap, but there are
few remaining locations in the United States where dams could be built. Its
overall potential is therefore relatively small.
This method has distinct advantages and disadvantages. One advantage
is that it enables options with different lifetimes to be compared. The costs
(and benefits) of a natural gas-fired electricity plant may accrue over 25 to
30 years, a much longer period than the periods associated with vehicle
efficiency improvements, since the typical life of a car is probably not more
OCR for page 32
32
POLICY IMPLICATIONS OF GREENHOUSE WARMING
than 10 years. A disadvantage is that because implementation of the high-
priority options would change the pattern of emissions over time, the cost-
effectiveness of various options during the later portion of their operating
life might be different. For example, programs to use electricity more
efficiently appear quite cost-effective in the panel's current analysis. If
such programs were aggressively implemented, the need for new electricity
generating capacity over the next few decades would be reduced. Thus the
cost-effectiveness of investments in power generation in, say, 2010 could
be altered by electricity conservation programs today. This study makes no
attempt to account for such possibilities, but they could be examined in
future studies.
Each time a new analysis is performed, a new series of "least cost"
options will emerge. This circumstance allows policymakers to regularly
adjust actions to ensure the most efficient use of resources.
Assessing Adaptation Options
Options intended to help people and unmanaged systems of plants and
animals adapt to future climate change are more difficult to assess than
mitigation programs. First, we must speculate about future climatic condi-
tions. GCMs are currently unable to accurately predict local and regional
events and conditions of greatest interest to policymakers.
Second, we must predict how the affected systems are likely to react to
the changing conditions. Sensitivity to climate change depends on many
things, including physiological response to temperature or moisture stress
and dependency on other components of the system. A crucial concept in
the assessment is the speed at which the system adjusts. If adjustments are
made more rapidly than climatic conditions change, the system should be
able to adapt without government assistance, although not without cost.
In the panel's analysis of adaptation options, "benchmark" costs were
developed on the basis of the costs of contemporary extreme weather events
or conservation and restoration programs. These estimates were used to
develop a measure of the magnitude of the costs that might be associated
with climate change.
But the panel recognizes that many issues cannot be quantified. This is
especially true for impacts, and the impacts of concern are of three fundamentally
different kinds.
First are the consequences, either beneficial or harmful, for things that
are exchanged in markets. Agriculture, for example, will be affected by
changes in precipitation patterns and dates of frost in ways that will be
captured in prices and other market indicators. These are reasonably easy
to quantify, and adding up the market effects gives a clear picture of the
impacts.
OCR for page 33
POLICY FRAMEWORK
33
Second are things whose values are not well captured in markets. Gene-
tic resources are generally undervalued because there are few property rights
in genetic resources and people therefore cannot capture the benefits of the
investments they might make in preserving biodiversity. Many species are
unlikely ever to have marketable attributes, and it is virtually impossible to
predict which ones may ultimately have economic value. These conse-
quences are not well identified in current accounting systems.
Third are items that some people value for reasons that have little to do
with their "usefulness" or economic worth. This "ecocentric" valuation
assigns intrinsic value to the living world. Species loss, in this view, is
undesirable regardless of any economic value that may derive from those
species. Humanity, it is held, should not do things that alter the course of
natural evolution.
The panel recognizes the difficulty of measuring these noneconomic cri-
teria in the quantitative method described above. Since such values are
codified, to some extent, in laws (e.g., those to protect biodiversity), potential
greenhouse warming responses must be consistent with protection of the
noneconomic values. These may be among the most difficult values to
accommodate if climates change substantially. In spite of the difficulties
outlined above, the panel believes this cost-effectiveness approach is the
most useful method for evaluating policies involving response to greenhouse
warming.
OTHER FACTORS AFFECTING POLICY CHOICES ABOUT
GREENHOUSE WARMING
Once policy options have been ranked, certain factors not directly related
to greenhouse warming come into play in the decision-making process.
One such factor concerns risk perception. People differ in their willing-
ness to take risks. We can expect people to differ in their reaction to the
potential and uncertain threat of greenhouse warming as well. Some people
may be distressed by the possibility that cherished parts of their cultural
heritage or natural landscapes might be lost. Others might be unwilling to
accept some aspects of proposed adjustments perhaps abandoning their
traditional homeland and moving elsewhere. In any case, people and orga-
nizations will differ in their judgments about how much society should pay
to reduce the chance of uncertain climate change.
Another factor is the constraint of limited resources. The United States
is a large, wealthy country. Many other nations are severely constrained in
their ability to act because of limited financial and human resources.
Representative terms from entire chapter:
discount rate
