Climate Change: Is It Prudent to Wait?

The author has benefited from comments from Loren Cox, Mary Kenkel, Hunter Lovins, Sam Newell, Pablo Paster, and Jurgen Weiss. The views presented herein are not necessarily attributable to any of these, and the remaining errors are solely the responsibility of the author.

There are two schools of thought on the timing of steps to mitigate global climate change. One is to wait until new technology is developed. The other is to take meaningful steps right away.

The thoughtful proponents of waiting include Robert J Samuelson of Newsweek who argues that governments and individuals won't accept the required " draconian restrictions on economic growth and personal freedom." David Montgomery of CRA International believes that dramatic reductions in greenhouse gas emissions will only be economically viable with some as-yet-undiscovered technologies. Both suggest delay until an aggressive research and development program produces these new technologies.

Supporters of immediate action include Jim Hansen of NASA. The Earth "is nearing, but has not passed, a tipping point," he writes, "beyond which it will be impossible to avoid climate change with far ranging undesirable consequences." The recent Stern Review concurs, suggesting that climate change will have formidable economic costs. "The earlier effective action is taken, the less costly it will be."

To avoid unacceptable climatic consequences, the scientific findings to date suggest an overall CO2 "emissions budget" for the rest of the 21st century.1 Certain mitigation strategies can keep global CO2 emissions within this budget. These strategies consist of palatable measures, using existing technologies and some new technologies that are currently under development. These strategies do not require "draconian restrictions."

But further delay could result in a dreadful dilemma. At some point, when palatable measures are no longer adequate, the world would have to choose between adopting "draconian measures" and passing beyond Hansen's irrevocable tipping point.

The Emissions Budget

There is no longer any scientific uncertainty that the greenhouse gas (GHG) emissions generated by human activity are leading to global warming. However, the exact relationship between GHG concentrations in the atmosphere and global temperature remains unclear, as do the effects of a global temperature increase on sea levels and regional climate change.

Given the science to date, Hansen argues that any future global temperature increase should be limited to less than 1ºC.2 This 1ºC target global temperature increase translates into a target CO2 concentration in the atmosphere (in parts per million or ppm of CO2) by the end of the century. This target concentration defines a 21st-century emissions budget that limits total global CO2 emissions.

To keep below the 1ºC increase, Hansen believes that the 2100 target concentration should be 450-475 ppm of CO2.3 The budget for the remainder of the 21st century would then be 1646 billion tons for a 450 ppm target concentration and 1838 billion tons for a 475 ppm target concentration.4

A ton emitted this year cannot be withdrawn. It counts against the budget no matter what. If at some point cumulative emissions exceeded the budget, further emission reductions in later years (no matter how expensive they are) would be required to avoid exceeding the budget. Opportunities foregone in the near term to realize cheaper emission reductions can never be reclaimed.

Mitigation Strategies

The reference case (extrapolated) of the International Energy Agency shows that, without any policy changes, the total global emissions for CO2 for the remainder of the 21st century would be 5309 billion tons, which is about 300% above the global emissions budgets. 5 However, a well-designed mitigation strategy could meet the 475 ppm budget6 without recourse to "draconian" measures as shown in the graphs below.7

Through 2050, this mitigation strategy would combine land-use policies that arrest and then reverse deforestation practices with three major initiatives targeted at fossil fuel emissions. These initiatives would capture energy efficiency opportunities in buildings, industry, and transportation; reduce CO2 emissions from new and existing coal-fired power plants; and substitute bio-fuels for natural oil and gas. Since the key technologies for mitigating coal emissions and for biofuels are still under development, this strategy does not require these technologies until about 2020 and 2030 respectively as the graph below demonstrates.

Coal mitigation consists of a variety of measures, including increased reliance on renewable energy generation (such as solar, wind, and geothermal), increased nuclear power, and increased efficiency in generation, transmission, and distribution. It also includes carbon capture and sequestration (CCS) technology on coal-fired power plants to remove most of the CO2. The biofuels option will likely be cellulosic ethanol, but it could include other biofuels (that require little or no fossil fuels in production) and/or hydrogen from biomass or electricity generated from non-fossil fuels.

The mitigation strategy outlined above would work, but it is simply one of many strategies that would work. Others could rely more on nuclear power and less on CCS, more on end-use efficiency and less on biofuels, or vice versa. However, any viable mitigation strategy will likely include these four major categories: reversing deforestation, increasing end-use efficiency, mitigating emissions from coal-fired plants, and switching to biofuels.

After 2050, simply ensuring that all new coal use employs highly efficient CCS and that biofuels will substitute for nearly all natural oil and gas by 2100 would meet the emissions budget for the 475 ppm target in 2100. Meeting the emission budget of 450 ppm (which is about 200 billion tons or 10% lower) would require more reductions and would be harder to do both technically and economically.

Costs of Mitigation

Some economic studies have argued that these mitigation strategies would result in unacceptable economic impacts, which have led skeptics to speak of "draconian measures." However, these studies assumed that "draconian measures" would be required and then tautologically found that the adverse economic impacts would be unacceptable.8

According to the Stern Review, the average cost of stopping and reversing deforestation would likely be about $5 per ton of CO2. The efficiency gains assumed for the mitigation strategy presented above would have little or no net costs. Any increased capital costs for more efficient new sources would be offset by reduced energy-related costs.

Autos have served as a flashpoint on the efficiency issue. Libertarian advocates argue that the government should not dictate what car an individual can and cannot buy, that the individual has the right to buy a gas-guzzling SUV. But society routinely restricts individual freedoms for the sake of society as a whole. Such measures include taxes, traffic laws, security laws, environmental laws, criminal laws, building codes, smoking restrictions, to name just a few. The auto purchase decision is really no different.

E conomists have recognized the importance of " herd behavior" in
explaining ordinary purchase decisions. Many purchase decisions are based on what friends and neighbors do. If choices were limited to autos that were better for the environment and saved consumers money on gas, then the herd's options would be limited to the more efficient choices. No one would be prevented from buying the same car as his neighbor. The only change would be that the neighbor would have a more efficient car.

Technology to capture and store carbon would increase the cost of a new coal-fired power plant by about 50%. However, generation costs are about 50% of total electricity costs (the rest is transmission, distribution, and customer service), and coal-fired generation will not exceed 50% of total generation. Hence, total electricity costs would increase about 12.5%, and this is only after all coal-fired plants were new coal-fired plants with CCS. If the first plant represented 5% of total generation, the first plant would increase total electricity costs about 1%. Neither 1% nor 12.5% (and it would take a long time to get that high) can be considered "draconian."

The costs of mitigating emissions from existing coal-fired power plants would be higher than for new coal-fired power plants. But the average existing power plant is over 30 years old. If a mandatory retirement age were imposed (for example, 60 years old), essentially all existing plants would be retired by 2050 and presumably replaced with new coal-fired power plants.

Biofuels from cellulosic ethanol (or the equivalent) becomes an essential component of the strategy by 2050. Since this technology has not yet been developed, the costs are uncertain. However, the literature suggests that the costs are likely to approximate the current prices for oil and gas.

The recent Stern report suggests that the costs of avoiding global warming would be less than 1% of world gross national product. This figure is probably too high. If we add all the costs together—of reforestation, increased efficiency, coal mitigation, and biofuels—the total mitigation costs come to less than half this amount.9 Furthermore, if the costs decrease by 1% per year as a result of technological advances and the experience curve, the total costs in 2050 would be less than $500 billion, which is approximately the current U.S. defense budget.

Effects of Delay

There are obvious problems with delay. Opportunities to reduce emissions cost-effectively in the near term would be lost forever, and the foregone reductions would use up portions of the emissions budget, requiring more (probably more expensive) reductions later. Also, some capital assets—such as power plants and buildings—have very long useful lives. Dirty power plants and inefficient buildings built in the short run would exacerbate the global emissions problem for a long time. Finally, technological advances build on themselves, so that putting off the introduction of a technology would delay subsequent technological advancements.

Let's say the mitigation plan described above was delayed from 2010 to 2020. This delay—which Samuelson, Montgomery, and others have justified in terms of waiting for future technologies—would largely affect the deforestation and the efficiency options, since the coal mitigation does not start until 2020 and the biofuels do not start until 2030. In this case, the new technologies would be CCS on all new coal-fired power plants beginning in about 2020 and biofuels beginning in about 2030.

The effect of delay, of course, would be increased overall emissions during the 2010 to 2050 period. The reaping of deforestation and efficiency gains would be delayed by 10 years, so that, for example, the state of efficiency in 2020 would become the state of efficiency in 2030. Cumulative emissions through 2050 would be higher by 144 billion tons (about 10%).10 To remain within the emissions budget, these 144 billion tons would simply be added on to the overall amount to be reduced from 2051 to 2100.

The cost would be less, but not by much. With less end-use efficiency, there would be more new coal-fired power plants and more consumption of natural oil and gas. Hence, there would be more CCS, and a 30% market share of a larger oil/gas market means more biofuels. The present value of costs over the period would be reduced by about 5%. The present value cost savings divided by the increased cumulative emissions would be about $2 per ton. Conversely, moving from the delay scenario to the no-delay scenario would reduce cumulative emissions by 144 billion tons at a present value cost of about $2 per ton.

In the delay case, emissions would have to be reduced at the rate of 3.4% between 2051 and 2075 versus 1.3% between 2051 and 2100 in the no-delay case. The high rate of reduction in the delay case might not be technically feasible. Even if it were feasible, it might indeed require "draconian measures." The total costs would increase greatly, since the cost of the marginal reduction is always a lot higher than the average cost. These high costs would strain the political feasibility of such measures.

Alternatively, delay now may be equivalent to forsaking the 475 ppm target and accepting that the Earth will exceed the "tipping point."

What Next?

To save the planet, draconian restrictions are not required, if prudent steps are taken right away. Well-designed strategies, such as the mitigation scenario described above, can achieve meaningful GHG emission reductions without material adverse effects on "economic growth and personal freedom." Moreover, contrary to Montgomery's argument, there are enough current technologies, as Pacala and Socolow have found, that can stabilize emissions in 2050 at current levels or below. Clearly, the deforestation and efficiency options are available today. One of Montgomery's key references is a 1996 paper. The argument may have made a lot more sense in 1996 than it does today. Now we can see that carbon capture and sequestration (CCS) is a viable option. This is the technology we need to utilize low-cost coal without drastically increasing CO2 emissions. Also, we now see that cellulosic ethanol or the equivalent is a viable option, although it will likely not be commercially available until about 2030.

The mitigation strategy described above begins to employ deforestation and increased efficiency right away, assumes CCS on all new coal-fired power plants in about 2020, and assumes heavy reliance on biofuels after 2030. Indeed, this strategy is consistent with the Nordhaus "climate-policy ramp, in which policies to slow global warming increasingly tighten and ramp up over time."11

As I've argued in an earlier FPIF article, performance standards are probably the best way to implement this mitigation strategy, particularly for the efficiency options. These arguments are also made in the Stern Review.12

Priority should be given to the assets that endure, such as power plants and buildings, since dirty new power plants and inefficient new buildings would exacerbate the global warming problem for a very long time. A way to deal with new coal-fired power plants (many are planned to be built soon) without requiring CCS right away is to give each plant a lifetime emissions budget, calculated to require 85% removal over the life of the plant (say 60 years). This would enable plants to have higher emissions in the initial years, as the CCS technology is being perfected, but to have lower emissions in subsequent years. Whatever the emissions profile of the plant over time, the lifetime total emissions of the plant would not exceed the established lifetime budget. A national building code (with regional variations) would ensure that all new buildings meet minimum efficiency standards; the efficiency potential is enormous.13

Further delay can no longer be justified. Prudence dictates that meaningful steps should be taken now. These steps would result in meaningful reductions in greenhouse gases in the United States, the world's largest emitter, and then these could be recommended to the rest of the world, particularly the developing countries where most of the growth in emissions would occur. But first the United States must lead by example.14 The longer the United States delays, the longer the rest of the world will delay.

However, the delay strategy is right in one respect. We should delay the imposition of "draconian restrictions on economic growth and personal freedom," for now and forever. They are simply not necessary, if we act now.

Whatever technological advances would have been developed by a delay strategy can be incorporated into the no-delay mitigation strategy over time. Indeed, the mitigation strategy, if well designed, would accelerate technological advances by creating firm markets for them. There is little or nothing to lose from proceeding right away, and much to gain.15

End Notes

1. There are other GHGs in addition to CO2. The most significant of these are methane and black carbon (or soot). Meaningful reductions in the other GHGs could likely be done sooner and cheaper than reductions in CO2 emissions. Such reductions are a necessary but not sufficient element of any strategy to mitigate global climate change. This paper (and most of the global climate change debate) focuses on CO2, because it represents the most formidable challenge. But the other GHGs should not be ignored.
2. Hansen's target of 1ºC from year 2000 is essentially equivalent to the 2ºC target above pre-industrial level adopted by the European Union, since there has been about a 1ºC increase in global temperature from pre-industrial times. "This does not mean that climate impacts will be negligible if global warming is kept under 1ºC (relative to the year 2000), but the planetary conditions will be within a range in which we know that the climate did not go seriously haywire in the past. In contrast, if warming approaches the range 2-3ºC, it is virtually certain that there will be large-scale disastrous climate impacts for humans as well as for other inhabitants of the planet." James Hansen, Testimony before the U.S. District Court for the District of Vermont, Case Nos. 2:05-CV-302 and 2:05-CV-304 (Consolidated), p. 15.
3. Personal email, August 10, 2006. The range depends on the effectiveness of reducing non-CO2 GHGs, such as methane and carbon black. This is essentially equivalent to 475-550 ppm of CO2-equivalent—discussed in the recent Stern Review based on work by Malte Meinshausen—since the concentration of non-CO2 GHGs represent the equivalent of about 50 ppm of CO2. However, Meinshausen finds that at 550 ppm of CO2 equivalent "... the risk of overshooting [the global temperature increase target] ... is 63% in equilibrium." Malte Meinshausen, "What does a 2ºC Target Mean for Greenhouse Gas Concentrations? A Brief Analysis Based on Multi-Gas Emissions Pathways and Several Climate Sensitivity Uncertainty Estimates," in Avoiding Dangerous Climate Change, edited by Hans Joachim Schellnhuber, Wolfgang Cramer, Nebojsa Nakicenovic, Tom Wigley, and Gary Yohe, Cambridge University Press, 2006, p. 275. The equilibrium temperature change associated with this target exceeds 1ºC, but this equilibrium would not be achieved for "several centuries" due to the effects of the oceans. Hence, 450-475 ppm is a sound target for 2100, so long as annual global emissions in 2100 are below the capacity of the atmosphere to absorb CO2 in 2100, so that the concentration of CO2 in the atmosphere would be decreasing too.
4. An appendix documenting these calculations is available upon request at hoff@hoffstauffer.com.
5. World Energy Outlook, 2004, International Energy Agency, Paris, France
6. Also, annual emissions in 2100 would be below the absorptive capacity of the atmosphere.
7. These forecasts were developed using the Global CO2 Forecasting Model, developed by the author and explained in Economics of CO2 Mitigation presented at the EUCI Conference in Miami, December 6, 2005. This presentation, the model, and the assumptions employed are available upon request at hoff@hoffstauffer.com. The reference case forecast is the same as that in the 2004 World Economic Outlookby the International Energy Agency. This model lacks some of the sophistication of the more complex models because it is simple and transparent. The effect of this simplicity is to over-estimate costs since price-induced feedbacks are not captured. However, the complexity of the other models creates major problems. As Nordhaus says—in William D. Nordhaus, The "Stern Review" on the Economics of Climate Change, Working Paper 12741, National Bureau of Economic Research, Cambridge, MA, December 2006—"It is virtually impossible for mortals outside the group that did the modeling to understand the detailed results ..." Or as Dennis Anderson explains—in "Costs and Finance of Abating Carbon Emissions in the Energy Sector," October 20, 2006, in support of the Stern Review op cit—"Results differ appreciably between models, and, given the complexity of the models, it takes a heroic effort ... to identify why particular results have been arrived at and why they differ ..."
8. These studies assumed mitigation strategies that were trying to do too much too fast and that were focused on existing sources as well as new sources. While mitigating new sources is relatively cheap, mitigating existing sources can be very expensive. Also, these studies assumed that a cap and trade system would be employed across all sources (new and existing). An effect of a cap-and-trade system is that all emissions are valued at the allowance price. This is equivalent to a "tax" on all emissions. These "taxes" have additional adverse economic impacts since they increase prices, and the government's use of the "tax" revenues (via the allocation of allowances and allowance revenues) can be both inequitable and inefficient, distorting the allocation of resources within the economy.
9. The costs are the product of the cost-per-ton-removed times the tons removed. The emissions reductions come from the Global CO2 Forecasting Model forecasts. The costs-per-ton-removed are average costs, not marginal costs. The marginal costs of the most cost-effective options would be much lower. The average costs were assumed to be conservatively high:

• The $5 per ton for arresting and restoring deforestation is from the Stern Report.
• The $5 per ton for efficiency in buildings and industry is probably quite high, since most efficiency options would save money.
• The $10 per ton for transportation efficiency is also probably quite high, since a 50% increase in fleet efficiency is possible by simply converting to 1982 vehicle performance and weight. Such a conversion would likely reduce costs for the consumer, since smaller, lighter vehicles would be less costly to produce.
• The $25 per ton for coal mitigation on new plants is the cost of CCS. Other coal mitigation options such as renewables and nuclear could be less expensive.
• The $30 per ton for coal mitigation of existing plants includes $5 for the incremental costs of retiring these plants after 60 years and replacing them with new plants.
• The $35 per ton for biofuels is probably very high, since the current literature suggests that the costs are likely to approximate current prices for oil and gas. If this were true, the cost-per-ton-removed would be zero.

See table below.

Total Mitigation Costs as % World GDP in 2050

	$/ton	10^9 tons	$10^9
Reforestation	$5	8	$40
Efficiency Case without Auto	$5	9	$46
Efficiency with Auto	$10	5	$51
Efficiency + Coal Mitigation (new only)	$25	7	$181
Above + Existing coal too	$30	4	$127
Above + Biofuels	$35	6	$196
Total Mitigation Costs	$14	39	$641
World GDP			$164,159
Total Costs as % of World GDP			0.4%

10. Emissions reductions would be foregone in reforestation and efficiency. Costs would decrease in these categories but increase in coal mitigation and biofuels, since there would be more new coal-fired power plants and oil/gas consumption.

See table below.

Effect of Delay Scenario in 2050

		Mitigation Case		Delay Case		Difference
	$/ton	10^9 tons	$10^9	10^9 tons	$10^9	10^9 tons	$10^9
Reforestation	$5	8	$40	6	$30	-2	-$10
Efficiency Case without Transportation	$5	9	$46	7	$37	-2	-$9
Efficiency with Transportation	$10	5	$51	5	$46	-1	-$5
Efficiency + Coal Mitigation (new only)	$25	7	$181	8	$211	1	$30
Above + Existing coal too	$30	4	$127	4	$125	0	-$2
Above + Biofuels	$35	6	$196	6	$201	0	$5
Total Mitigation Costs		39	$641	36	$650	-3	$9
World GDP			$164,159		$164,159
Total Costs as % of World GDP			0.4%		0.4%
PV Costs (2010-2050)			$5,016		$4,829		-$186
Cumulative Emissions		1249		1392		144

11. William D. Nordhaus, The "Stern Review" on the Economics of Climate Change, Working Paper 12741, National Bureau of Economic Research, Cambridge, MA, December 2006. On the same page he explains: "As societies become richer in the coming decades, it becomes efficient to shift investments toward policies that intensify the pace of emissions reductions and otherwise slow GHG emissions. The exact mix and timing of emissions reductions depends on the details of costs, damages, and the extent to which climate change and damages are irreversible."
12. Stern Review, Economics of Climate Change (chapter 17): "Widespread failures and barriers in many relevant markets result in significant untapped energy efficiency potential." Also, "these obstacles [market imperfections affecting primarily efficiency options] mean it is necessary to go beyond policies to establish carbon markets and encourage technological research, development, and diffusion."
13. An appendix providing detail on implementing the mitigation strategies discussed herein is available upon request at hoff@hoffstauffer.com.
14. Of course, we cannot know whether the developing countries would follow the U.S. lead with performance standards. But it is clear that they are more likely to take meaningful steps if the United States, the world's largest emitter, takes meaningful steps first and if required steps impose only modest burdens on their economies. Mitigating new source emissions is much cheaper than attempting to mitigate existing source emissions, and these costs are imposed on only a fraction of the economy (only new sources) every year. Also, an effective global GHG emissions mitigation strategy would be in the self-interest of the major Asian emitters, since sea-level increases would inundate hundreds of millions of people in these countries. James Hansen, Testimony before the U.S. District Court for the District of Vermont, Case Nos. 2:05-CV-302 and 2:05-CV-304 (Consolidated).
15. To reach the conclusion that further delay can not be justified, one need not give great weight to Stern's economic findings, particularly since Nordhaus has observed that they rely on the use of a very low discount rate. Rather one could rely on the science on the one hand and the simple economics on the other. The science reveals that delay could lead to "changes that constitute practically a different planet." The simple economics indicate these changes can be avoided without "draconian" measures, so long as we start right away. Nordhaus [op cit., on page 9] explains: "If we were to substitute more conventional discount rates used in other global-warming analyses, the Review's dramatic results would disappear, and we would be back to the climate-policy ramp ..." But Stern had anticipated this criticism: The discount rate "should be seen as a prescriptive or ethical issue rather than one which depends on the revealed preference of individuals in allocating their own consumption and wealth (the descriptive approach) ... In other words, if you care little about future generations you will care little about climate change ... that is not a position which has much foundation in ethics and which many would find unacceptable." But then they come together when Nordhaus observes: "In effect, we are using a low social discount rate to 'prevent dangerous interference with the climate system' ... Why not simply adopt policies that will directly keep the climate change below the dangerous threshold?"