Download Chapter 7 – global warming - Iowa State University Department of

Greenhouse Gases and Global Climate
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Global warming is linked to the accumulation of a
variety of gases in the atmosphere.
These gases, which include carbon dioxide,
methane, nitrous oxide, and water vapor, trap
infrared radiation that would normally escape from
the earth’s atmosphere into space.
This increased gas serves to increase the capacity
of the atmosphere to absorb heat.
There is virtually no debate about this relationship.
The debate is centers on the magnitude and timing
of the change in heat absorption and the
significance to human welfare.
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Carbon Cycle
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The carbon cycle refers to the movement of carbon
from the atmosphere to the earth’s surface.
Carbon is stored in the biomass of every organism.
Carbon dioxide is also dissolved in surface water,
with the oceans playing the largest role.
Carbon dioxide is removed from the earth’s
atmosphere when a tree grows.
When an animal eats a plant, the carbon is
transferred from the plant to the animal.
When an animal or plant dies, it decays and the
carbon combines with oxygen to become carbon
dioxide.
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Kids Crossing, Cycles of the Earth
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Carbon Cycle
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Anthropogenic activities which upset the
carbon cycle include burning of fossil fuels or
deforestation.
Fossil fuels, such as oil, coal and natural gas,
are the fossilized remains of prehistoric
plants and animals and represent stored
carbon.
Deforestation has two impacts: the
breakdown of carbon in the bi-products of the
wood and the loss of trees to draw carbon
dioxide out of the atmosphere.
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Carbon Cycle
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A process called carbon sequestering
involves planting new forests to reduce
atmospheric carbon dioxide concentrations.
The greatest opportunity for this is in tropical
areas where growth rates are the fastest.
Opportunities also exist in agriculture, carbon
can be sequestered in soils and perennial
cropping systems
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Other Greenhouse Gases
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Methane comes from a variety of anthropogenic and
natural sources.
Natural sources include wetlands and other areas
where anaerobic decay of organic matter takes
place.
Anthropocentric sources include emissions from
cattle and sheep, wet rice cultivation, emissions
from coal mines and oil and natural gas wells.
Nitrous oxide originates from the burning of fossil
fuels and biomass and also agricultural fertilizers.
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Is Global Warming Increasing?
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Virtually all evidence suggests very strongly that the
mean global temperature has increased as a result
of anthropogenic greenhouse gas emissions and
that it will continue to increase.
All the scientific evidence suggests that there will be
significant increases in sea level.
Many uncertainties exist about the nature of regional
distribution of global climate change.
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Twentieth-Century Changes in the Earth’s
Atmosphere, Climate, and Biophysical System
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Evidence comes from many sources:
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Ice core samples of glaciers.
Pollen records from sediments in lakes.
Human records, some historical and some recent
and systematic.
Intergovernmental Panel on Climate (IPCC)
is an international scientific agency designed
to share information and encourage
cooperation of scientists, fourth assessment
completed --- Nobel Peace Prize
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IPCC Summary Report
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What are the Consequences of Global
Climate Change?
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In the 1990s much of the economic literature
focused on the ability to mitigate damages
associated with climate change through adaptation
(for example protecting Manhattan with a sea wall or
switching agriculture to heat-tolerant varieties).
While the US has a complex network of land-grant
universities, government agencies and private
industries which will work to investigate and
implement strategies to address climate change, this
is not true for small farmers in developing countries.
In addition, the ability to adapt to change will depend
on the magnitude of the change.
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What are the Consequences of Global
Climate Change?
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Nordhaus (1991) estimated the annual impact on
the US economy of doubling of atmospheric CO2 is
approximately $12.63 billion, or 0.26% of national
income.
Cline’s estimate (1992) was higher (2% of national
income) and included nonmarket impacts.
More recent studies tend to report damages on a
per ton of carbon basis, allowing for better
comparison with cost of reducing emissions.
Damages from global warming may be even greater,
because some types of impacts, in particular, the
impacts on ecosystems and the reduction in
ecological services, are not factored into global
warming.
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What are the Consequences of Global
Climate Change?
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One particular aspect of global warming that
is likely to be quite costly is the effect of sealevel rise on low-lying Third World countries.
In the future, these areas may be lying
entirely under water or at such a low
elevation above sea level that they become
even more vulnerable to storms.
This may result in a rise in movement of
refugees, growing political destabilization and
rising costs associated with relocating
refugees.
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What are the Consequences of Global
Climate Change?
• Ausabel (1991) argues that the most significant
damages from global warming may lie in damages
to natural systems, particularly those already under
stress.
 The climate change taking place with global
warming is at a relatively rapid pace. This pace is far
too rapid for a forest to adjust by natural selection.
 Finally, there is the very important impact of global
climate change on the distribution of tropical
disease.
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Global Warming Policy
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Many characteristics of the global warming problem
make it substantially different from other
environmental problems. These include:
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The need to deal with many different pollutants --- all
greenhouse gases
The fact that damages don’t occur at the same time as
emissions
Uncertainty in all aspects (benefits and costs of control)
Importance of equity issues, both across generations and
across countries
Need to achieve international cooperation ---- no world
government
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The Necessity to Deal with Many
Different Pollutants
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One cannot merely look at the cost of reducing a
kilogram of carbon dioxide emissions and compare it
to the cost of reducing a kilogram of N2O. Each
greenhouse gas has a different level of radiative
forcing (heat absorbing potential), and each has a
different atmospheric life.
The IPCC developed a global warming index
(GWPI) to measure the equivalency of greenhouse
gases.
While a GWPI can measure the warming potential
associated with two gases, it does not consider the
different time paths and possible different potential
long term damages.
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Policy Situation
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Taxes vs. Permits (cap and trade), Aldy
International
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Kyoto and possible alternatives
EU Emissions Trading
Harvard Policy International alternatives ppt
Current Climate Negotiations: UN Climate
Change Conference in Bali, where to from
here?
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Emissions Taxes for GHGs (Primer by Joe
Aldy)
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Financial incentive of some form is needed to
curb CO2 emissions
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Cap and trade (permits) or a tax are the two
most realistic choices
Focus of this piece is to explain how a tax could
be structured, also provides some nice
comparisons between tax and permits
One approach is an “Upstream tax” where
energy producers would pay a tax based on CO2
content of the fuels they sell
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Emissions Taxes for GHGs (Primer by Joe
Aldy)
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Fees on natural gas, petroleum products, and coal
would all be different based on their carbon content
Such ‘upstream” fees would could cover more than
98% of CO2 emissions through relatively small
number of firms (~2500)
This means such a tax would be administratively
straightforward – just like an excise tax that many
fuel suppliers already pay
Aside: downstream tax is a tax on all products
based on their usage of carbon inputs, Aldy doesn’t
discuss
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Emissions Taxes for GHGs (Primer by Joe
Aldy)
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What will happen to cost of energy and
products that use energy?
They will increase, and the costs will get
passed on through the energy system
Incentives for alternative fuels will be created
Incentives to find lower energy approaches to
production of all things will be created
Emission taxes would generate lots of money
for the government
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Emissions Taxes for GHGs (Primer by Joe
Aldy)
Example of an tax schedule (source not cited)
Year
Tax rate
Est. CO2 decline
2015
$15/ton CO2
5%
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2020
$20/ton CO2
9%
2030
$50/ton CO2
29%
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Revenues from such a tax would be substantial, $95
billion in 2015 alone, what could be done with
those?
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Emissions Taxes for GHGs (Primer by Joe
Aldy)
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Tax revenues could be spent on
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Lowering other taxes (reduce income tax, etc.)
Paying off federal debt
R&D on alternative energies
Medicare, social security, etc.
Stupid wasteful things, government inefficiency
etc.
Lowering other taxes that are distortionary
(such as income taxes) could really benefit
the economy
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Emissions Taxes for GHGs (Primer by Joe
Aldy)
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Sequestration could be included in such a
program, a firm that captured and stored C
could generate credits and sell them to
another firm in lieu of their fees
If this starts to sound like a permit system,
you are right, it starts to be a hybrid, a true
tax system would pay a negative tax to
sequestration
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Emissions Taxes for GHGs (Primer by Joe
Aldy)
Comparing a tax to cap-and-trade
1. How will they compare in terms of costs to
consumers? If permits are given out free, won’t
firms hold the line on prices and not pass on costs?
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Nope. Firms will consider the opportunity costs of those
permits, what they could sell them for rather than use them,
in their pricing.
There will be differences in the distribution of cost
increases depending on whether permits are free or must
be purchased by firms
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Emissions Taxes for GHGs (Primer by Joe
Aldy)
Comparing a tax to cap-and-trade
2. How does a cap-and-trade compare to a tax in
terms of tax revenues? Depends on whether some
or all of the permits are auctioned or sold and at
what price
3. How do they compare in terms of certainty?
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Aldy points out that a tax provides a certain cost, if there
are changes in firms’ economic conditions from year to
year, they can vary how much they purchase vs how much
they pollute
Since it’s the total amount of GHGs in the atmosphere that
matter, if there are more than average emitted in one year,
that’s ok, as long as they are offset in future years.
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European Union Emission Trading
Scheme (Wikipedia)
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Largest multi-national, emissions trading
program in the world
Major component of EU climate policy
Phase I covers more than 10,000 plants,
factories, etc
Covers about half of the EU's emissions of
CO2 and 40% of its total greenhouse gas
emissions
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European Union Emission Trading
Scheme
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large emitters must monitor and annually
report their CO2 emissions, must have
permits to cover their emissions
Emitters get the allowances for free from the
government (initially),
then may purchase them from others
(installations, traders, the government.) or
can sell if they have more than they need
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European Union Emission Trading
Scheme
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Trades can occur by:
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privately, moving allowances between operators
within a company and across national borders
Using a broker or over the counter to privately
match buyers and sellers
trading on the spot market of one of Europe's
climate exchanges (e.g., European Climate
Exchange).
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European Union Emission Trading
Scheme
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Phase I: 2005-2007 ----- practice
first year, 362 million tonnes of CO2 were traded on
the market for a sum of €7.2 billion,
price of allowances hit its peak level in April 2006 of
about €30 per tonne CO2,
fell in May 2006 to under €10/ton when countries
indicated large emission caps – so there was no
need for them to reduce emissions.
trading price of €1.2 a tonne in March 2007,
declining to €0.10 in September 2007.
Prices currently low – can check climate exchange
yourself
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European Union Emission Trading
Scheme
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Phase II: 2008-2021 ---- first Kyoto
requirements
scope expanded:
Clean Development Mechanism and Joint
Implementation Credits
Aviation emissions included from 2010
Four non-EU members, Norway, Iceland,
Liechtenstein and Switzerland
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European Union Emission Trading
Scheme
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In January 2008, the European Commission
proposed changes
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centralized allocation (no more national allocation
plans),
auctioning a greater share (60+ %) of permits
rather than allocating freely,
inclusion of the greenhouse gases nitrous oxide
and perfluorocarbons.
Also, revising caps foresee for an overall
reduction of greenhouse gases of 21% in 2020
compared to 2005 emissions.
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US: Chicago Climate Exchange
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“CCX is a self-regulatory exchange that administers a voluntary, legally
binding pilot program for reducing and trading greenhouse gas (GHG)
emissions in North America, with participation of Offset Providers from
Brazil”
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How does it work?
 CCX members commit to reduce GHG emissions 1% per year over
the years 2003 through 2006 (1998 -2001 average)
 Members that reduce their emissions below the required level can sell
surplus emission allowances on the exchange or bank them.
 A member that cannot achieve the reduction target internally can
meet its compliance commitment by purchasing emission allowances
through CCX’s electronic trading platform or purchase project-based
offsets.
 Eligible offsets can come from methane collection and carbon
sequestration projects.
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Why does anyone join?
 Value of being a “green” firm
 Costs pretty low, ~$2 ton
 Learning, early mover advantage,….
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Iowa Farm Bureau
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Exchange Soil Offsets (XSOs)
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Commit to 4 years conservation till or grass
Annual certification by IFB
Price paid from going rate on CCX, less 10%
aggregator fee
Goal of 100,000 acres
Also aggregating Exchange Methane Offsets
and Exchange Forestry Offsets
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Harvard Project powerpoints
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UN Climate Change Conference, Bali,
2007 : Summary from Stavins and Aldy,
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The conference was a "qualified success."
Before Bali, we observed that it will be good news if
there's no bad news coming out of the negotiations. This
was achieved, and then some.
For the Bali Roadmap, countries agreed to continue
working together, and they have agreed on certain
measures.
 The ultimate destination was not decided. That was
not feasible and was not necessary.
 But the direction was decided and the vehicle for
travel was augmented in positive ways
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UN Climate Change Conference, Bali,
2007 : Key Takeaways Stavins and Aldy,
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Specified intent to complete negotiations on post-2012 plan by the end of 2009.
The Intergovernmental Panel on Climate Change's fourth assessment report was
recognized as the authoritative report on the science of climate change.
A shared vision for long-term action, including a long-term emission reduction goal,
will be addressed through the Bali action plan process.
All developed countries are expected to undertake mitigation commitments or
actions, including quantified emission targets.
Developing countries, for the first time, offered to include "mitigation actions" in the
next international agreement. It is not clear yet what these plans of action will be,
and to what extent they will depend upon prior actions in the industrialized world,
but this is a step in the right direction.
Work will commence on methods to demonstrate emissions reductions from
retarded deforestation and design policy incentives for reducing emissions from
deforestation and land degradation. (Deforestation — from a range of countries,
including Brazil and the Congo — accounts for roughly 20 percent of greenhouse
emissions.)
Adaptation is now getting much more attention. The Bali plan calls for efforts to
assess the vulnerability of low-income countries, develop capacity, promote risk
management and risk reduction efforts, and facilitate resilience through economic
diversification.
Work will commence on a program for technology transfer to developing countries
as well as cooperation on the research and development of new climate-friendly
technologies.
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