Download Environmental Linkages and Climate Change Part Two

Topic 4.c: The Economics of Global Warming
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Various studies have come out recently: we will look (briefly) at the conclusions of
the Stern Report.
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Stern was commissioned by the UK government to analyse costs and benefits of
different abatement strategies.
– Released in October 2006 What are the main findings in the Stern Report?
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If annual emissions stay constant (unlikely without policy), then:
– Stock of GHG could double (relative to 1850) by 2035.
• 77% - 99% chance this will  2° increase in average global temp.
– Stock of GHG could treble by 2100.
• At least 50% chance this will  5° increase in average global temp in the
following decade.
– Effects of a 2° increase are probably large. Effects of 5° increase are hard to
even imagine.
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Topic 4.c: The Economics of Global Warming
• If we continue with Business As Usual (BAU), effects of
climate change will be potentially large and irreversible.
– Large benefits from abatement.
• Stern Report accounts for the possibility of so-called “abrupt
climate change.”
– By some estimates, this could result in average
decreases in GDP in the range of 5-10%.
– Some (poorer) countries may suffer losses > 10% of GDP.
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Topic 4.c: The Economics of Global Warming
• Also accounts for various other costs of climate
change that some studies overlook.
– “Non-market effects” (effects on environ, eg.
extinctions).
• Can lead to cost estimates in the range of 511% of GDP (this is a controversial claim).
– Tries to account for feedback effects.
– Also looks at the idea of weighting effects on
poorer countries more heavily than richer
countries. An attempt to include distribution
considerations.
• Bottom line: BAU in GHG emissions could reduce
GDP per head by 5-20%, depending on assumptions
made.
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Topic 4.c: The Economics of Global Warming
• Stern also looks at a number of different abatement scenarios, all
in terms of GHG concentration.
– Focus is on doubling of stock of GHGs (relative to 1850).
• Means atmospheric concentration of around 550 ppm.
• Different emissions paths are calculated, each of which achieves
550 ppm, but with different distribution of abatement across time.
• Costs of abating emissions to achieve 550ppm?
– Bottom line for Stern is that the average annual cost will be
around 1% of GDP by 2050.
• Conclusion for Stern: Benefits of 550 ppm (avoided damages of
5% or so of GDP) > Costs of abatement (1% of GDP).
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Topic 4.c: The Economics of Global Warming
• Stern’s policy prescriptions focuses on three “essential
elements”:
– Establishing a global price for carbon.
• Can be achieved via a carbon tax or through permits.
– Policies supporting R&D in abatement technology are
key.
• Achieved in part through carbon pricing, but more is
needed.
– Removal of “barriers to behavioural change.”
• For instance, the provision of reliable information to
consumers, standards on consumer products etc.
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Topic 4.c: The Economics of Global Warming
• Other factors that are important in terms of policy:
– Adaptation to climate change.
– Fostering of international co-operation.
– Distributional effects (to ensure the developing world is on
board).
• So far we have looked at global policy to mitigate the effects
of climate change.
– Different mechanisms of the Kyoto Protocol (big picture).
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Topic 4.c: The Economics of Global Warming
• How is Canada planning on meeting its Kytoto obligations?
– Recall: Canada has agreed to reduce GHG emissions to
6% below 1990 levels, by 2012.
• A reduction of about 35% relative to 2004 emissions!
• Tricky to formulate a national plan due to the division of
powers under the Canadian Constitution.
• Provinces (rather than the Federal governement) essentially
have the power to make environmental policy.
• National/Federal plan to meet Kyoto targets in a state of flux.
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Total GHG Emissions, Canada 2005
7.61%
3.60%
26.70%
7.12%
ENERGY (TRANSPORTATION)
ENERGY (OTHER)
INDUSTRIAL PROCESSES
AGRICULTURE
WASTE
54.97%
Source: National Inventory Review
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Total Energy-related GHG Emissions in Canada
2005
(energy related emissions = 82% of total emissions)
1%
7%
22%
11%
Electricity and Heat Generation
Fossil Fuels
Manufacturing
Commercial & Institutional
Residential
Aviation
Road Transportation
13%
23%
Fugitive Sources
Other Stationary Sources
Other Transporation
8%
2%
7%
6%
Source: National Inventory Review
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Total GHG Emissions in BC, 2005
7.55%
0.03%
3.77%
4.76%
39.26%
ENERGY (TRANSPORTATION)
ENERGY (OTHER)
INDUSTRIAL PROCESSES
AGRICULTURE
WASTE
OTHER
44.63%
Source: National Inventory Review
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Total Energy-related GHG Emissions in BC, 2005
(energy related emissions = 84% of total emissions)
0.33%
9.73%
3.52%
Electricity and Heat Generation
14.60%
Fossil Fuels
Manufacturing
11.99%
Commercial & Institutional
11.02%
Residential
Aviation
Road Transportation
Fugitive Sources
Other Stationary Sources
6.56%
30.76%
Other Transporation
8.18%
3.31%
Source: National Inventory Review
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Topic 4.c: The Economics of Global Warming
• National-level Canadian Policy.
• Original Clean Air Act tabled in October 2006.
– Contained no mention of Kyoto or Canada’s Kyoto
obligations.
– No hard caps on GHG emissions reductions until ~ 2025.
– No emphasis on carbon trading as a way to meet goals.
– But somehow imagined GHG emissions would be reduced
by 45-65% by 2050.
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Topic 4.c: The Economics of Global Warming
• Amended Clean Air and Climate Change Act (2007)
– Requires hard caps on industry, beginning in 2008, aimed
to reduce GHG emissions to 6% below 1990.
– Penalties for emissions above target = $20/tonne.
– Commitment to global carbon trading.
– Also tries to address auto emissions
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Topic 4.c: The Economics of Global Warming
• BC Provincial policy:
• In the provincial Budget of 2008 a Revenue-Neutral Carbontax was introduced in British Columbia.
• The carbon tax applies to virtually all fossil fuels in BC.
• All carbon tax revenue - about $1.8 billion over three years will be returned to British Columbians through reductions to
income and business taxes.
• The legislation requires the government to table annually, a
plan to ensure the carbon tax remains revenue neutral.
• To help offset the cost of the carbon tax, lower income
households receive a Climate Action Credit of $100 per adult
and $30 per child per year. People were encouraged by the
government to spend the credit on reducing their carbon
footprint
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Topic 4.c: The Economics of Global Warming
• Another important policy document that addresses climate
change action in BC is the Energy Plan released in 2007.
• Some of the policies established are:
– Zero greenhouse gas emissions from coal fired electricity
generation.
– All new electricity generation projects will have zero net
greenhouse gas emissions.
– Zero net greenhouse gas emissions from existing thermal
generation power plants by 2016.
– Set an ambitious target, to acquire 50 per cent of BC
Hydro’s incremental resource needs through conservation
by 2020.
– Implement energy efficient building standards by 2010.
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Topic 4.c: The Economics of Global Warming
– Establish a set purchase price for electricity generated
from projects up to 10 megawatts.
– Establish a $25 million Innovative Clean Energy Fund.
This was achieved through the ICE levy in every Hydro
Bill.
– Eliminate all routine flaring at oil and gas producing wells
and production facilites by 2016 with an interim goal to
reduce flaring by 50 per cent by 2011.
– Requirement that 90% of energy comes from clean or
renewable sources.
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Topic 4.c: The Economics of Global Warming
• Reducing GHG emissions from transportation will be
important.
– Recall that ~ 40% of BC’s emissions are from this sector.
• Proposed measures include:
– Development of fuel cell and hydrogen infrastructure.
– Expansion of tolls on major transport corridors.
– Various plans for public transit.
– New tailpipe emissions standards for new cars sold in BC.
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