The costs of America's Climate Security Act

Also known as Leiberman-Warner, this carbon cap-and-trade proposal is the frontrunner in the race for incentive-based climate policy (and my personal fav). Incentive-based policy tends to reduce the costs of environmental regulation sooooo, what are the costs? Brian Murray (Duke) and Martin Ross (RTI) have recently posted a policy brief on this subject (see NI PB 07-04). Their initial finding is the "no free lunch" axiom:

Actions to fight the risks of climate change require a commitment of resources and investment and deployment of low-carbon technologies that cut across virtually all sectors of the economy. Because these resources are diverted from other uses in the economy, they entail opportunity costs ...

Right on. Government policy has costs. There is no win-win. The idea is to pursue government policy where the costs exceed are less than the benefits. Plenty of studies find that is the case for climate [PDF]. The trick now is to try to mitigate climate change at the lowest cost.

Here are the basic results on emissions, carbon prices and GDP from the policy brief:

• The policy generates substantial emissions reductions across the economy. Total U.S. GHG emissions (including capped and uncapped sectors) are projected to be approximately 27% lower than Reference Case emissions in 2030, and 44% lower in 2050.
• ...
• Allowance prices are projected at $18/t CO2e in 2015, $38 /tCO2e in 2030, and $101 /tCO2e in 2050.
• Compliance with the targets has a small effect on rising GDP. By 2030 GDP is projected to increase 112% from 2005 levels in the Reference Case, and by 2050 the projected increase in GDP from 2005 levels is 238%. Under Lieberman-Warner, GDP is estimated by the model to be 0.5% ($75 billion) lower in 2015, 0.9% ($245 billion) lower in 2030 and 1.5% ($658 billion) lower in 2050 than in the Reference Case.

What does that mean for my great-great-grandkids? Even without turning on MSExcel or Google spreadsheets, I can tell that they'll have a lot more money than I do even with a lot less carbon relative to business as usual.

Comments

[hh]

errrr...."The idea is to pursue government policy where the costs exceed the benefits." ... little typo there?

[Climateer]

Thanks for the heads up on Murray; Ross.
Can anyone tell me what the effect on temperature ca. 2050 will be? I didn't find the number in the bill. Will we be lowering temp. 1 degree, two, five?
Any help would be appreciated.

[odograph]

Climateer, the dance is obviously between countries that are early adopters of climate regulation and those countries that shyly wait at the corners of the room.

To really hit an X degree target, we'd probably have (a) to do so by successive approximation, adjusting strategies to observed results, and (b) do so on a global basis.

[John Whitehead]

hh,

Benefits, costs, what's the diff?!!?

Thanks.

[odograph]

Heh, I saw that but thought it was economist lingo in action again.

[Lou]

Clearly, there are huge costs of climate inaction. The costs of abandoned flooded real estate, massive dikes, refugees and the likelihood of refugee related violence are on the other side of the ledger, as costs of inaction.

It is cheaper to build a shanty than a weatherproof house but most accept the cost of a sturdy house as necessary in the face of the risks of storms.