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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
May 2008:
Climate Change:
Expert Opinion on the Economics of Policy Options to Address Climate
Change:
Climate Change:
GAO-08-605:
GAO Highlights:
Highlights of GAO-08-605, a report to Congressional requesters.
Why GAO Did This Study:
Elevated levels of greenhouse gases in the atmosphere and the resulting
effects on the earth’s climate could have significant environmental and
economic impacts in the United States and internationally. Potential
impacts include rising sea levels and a shift in the intensity and
frequency of floods and storms. Proposed responses to climate change
include adapting to the possible impacts by planning and improving
protective infrastructure, and reducing greenhouse gas emissions
directly through regulation or the promotion of low-emissions
technologies. Because most U.S. emissions stem from the combustion of
fossil fuels such as coal, oil, and natural gas, much of this report
centers on the effect emissions regulation could have on the economy.
In this context, GAO was asked to elicit the opinions of experts on (1)
actions the Congress might consider to address climate change and what
is known about the potential benefits, costs, and uncertainties of
these actions and (2) the key strengths and limitations of policies or
actions to address climate change. GAO worked with the National Academy
of Sciences to identify a panel of noted economists with expertise in
analyzing the economic impacts of climate change policies and gathered
their opinions through iterative, Web-based questionnaires. The
findings reported here represent the views of the 18 economists who
responded to both questionnaires.
What GAO Found:
All of the panelists agreed that the Congress should consider using a
market-based mechanism to establish a price on greenhouse gas
emissions, and 14 of the 18 panelists recommended additional actions as
part of a portfolio to address climate change, such as investment in
research and development of low-emissions technologies. Experts
differed on the initial stringency of the market-based mechanism, with
14 of the 18 panelists recommending an initial price between less than
$1 and $20 per ton of emissions. In addition, 14 of 18 panelists were
at least moderately certain that the benefits of their recommended
portfolio of actions would outweigh the costs. To establish a price on
emissions, most of the panelists preferred either a tax on emissions or
a hybrid policy that incorporates features of both a tax and a cap-and-
trade program. A tax would set a fixed price on every ton of emissions,
whereas a cap-and-trade program would limit or cap total emissions and
establish a market for trading (buying and selling) permits to emit a
specific amount of greenhouse gases. Under the cap-and-trade system,
the market would determine the price of emissions. A hybrid system
differs from a traditional cap-and-trade system in that the government
would cap emissions, but could sell additional emissions permits if the
permit price rose above a predetermined level. Panelists also
identified general categories of benefits, such as avoided climate
change damages, and costs, such as increases in energy prices,
associated with their recommended actions. Overall the panel rated
estimates of costs as more useful than estimates of benefits for
informing congressional decision making, with some panelists citing
uncertainties associated with the future impacts of climate change as
limitations to estimating benefits. Further, the majority of panelists
agreed that the United States should establish a price on greenhouse
gas emissions as soon as possible regardless of the extent to which
other countries adopt similar policies. At the same time, the majority
of panelists said it was at least somewhat important to participate in
international negotiations on climate change.
Panelists identified key strengths and limitations of alternative
policy approaches that should be of assistance to the Congress in
weighing the potential benefits and costs of different policies for
addressing climate change. Many panelists said that a cap-and-trade
program would be more effective in achieving a desired level of
greenhouse gas emissions because, unlike a tax, it would provide
certainty that emissions wouldn’t exceed a certain level. However, some
of the panelists also said that taxes would be more cost-effective than
a cap-and-trade program because the price of emissions would be certain
and not susceptible to market fluctuations. Eight panelists therefore
preferred a hybrid approach that incorporates features of both a tax
and a cap-and-trade program. On average, the panelists rated cost
effectiveness as the most important criterion for evaluating various
policy options. Finally, panelists said an important strength of using
a market-based approach is the ability for the government to raise
revenue through a tax or the sale of emissions permits and to use that
revenue to offset the adverse effects of the policy.
To view the full product, including the scope and methodology, click on
[http://www.gao.gov/cgi-bin/getrpt?GAO-08-605]. For more information,
contact John Stephenson at (202) 512-3841 or stephensonj@gao.gov
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Despite Some Uncertainty Regarding the Potential Economic Impact, All
of the Panelists Supported Establishing a Price on Greenhouse Gas
Emissions:
The Panelists' Views on the Strengths and Limitations of Policy Options
Focused Primarily on the Environmental Certainty of a Cap-and-Trade
System versus the Efficiency of a Tax on Emissions:
Appendix I: Scope and Methodology:
Appendix II: Selected Characteristics of Panelists' Preferred Policy
Options for Addressing Climate Change:
Appendix III: Selected Questions and Expert Responses:
Appendix IV: Panel of Experts:
Appendix V: Bibliography of Selected Literature Reviewed by GAO:
Appendix VI: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Potential Impacts of Climate Change by Sector:
Table 2: Selected Policies, Measures, and Instruments Currently Used by
Various Nations to Address Climate Change:
Table 3: Key Strengths and Limitations of Other Policy Options
Identified by Panelists:
Table 4: Selected Characteristics of Panelists' Preferred Policy
Options for Addressing Climate Change:
Figures:
Figure 1: Potential Impacts of Climate Change by Geographic Region:
Figure 2: Mean Panelist Ratings of the Importance of Additional Policy
Options to Address Climate Change:
Figure 3: Mean Panelist Ratings of the Importance of General Categories
of Potential Benefits as a Rationale for Addressing Climate Change:
Figure 4: Mean Panelist Ratings of the Importance of Types of
Assumptions in Integrated Assessment Models:
Figure 5: Mean Panelist Ratings of the Importance of Categories of
Uncertainties Associated with Benefit and Cost Estimates from
Integrated Assessment Models:
Figure 6: Mean Panelist Ratings of the Importance of Criteria in
Evaluating Policies for Addressing Climate Change:
Figure 7: Mean Panelist Ratings of the Importance of Ways That Revenue
Generated from a Market-Based Mechanism Could Be Distributed:
Abbreviations:
CCSP: Climate Change Science Program:
CCTP: Climate Change Technology Program:
DOE: Department of Energy:
EPA: Environmental Protection Agency:
EU ETS: European Union Emissions Trading Scheme:
IPCC: Intergovernmental Panel on Climate Change:
NAS: National Academy of Sciences:
NASA: National Aeronautics and Space Administration:
NOAA: National Oceanic and Atmospheric Agency:
UNFCCC: United Nations Framework Convention on Climate Change:
USDA: U.S. Department of Agriculture:
United States Government Accountability Office:
Washington, DC 20548:
May 15, 2008:
The Honorable Barbara Boxer:
Chairman:
Committee on Environment and Public Works:
United States Senate:
The Honorable Diane Feinstein:
United States Senate:
Changes in the earth's climate attributable to increased concentrations
of greenhouse gases may have significant environmental and economic
impacts in the United States and internationally.[Footnote 1] Among
other potential impacts, climate change could threaten coastal areas
with rising sea levels, alter agricultural productivity, and increase
the intensity and frequency of floods and tropical storms. Furthermore,
climate change has implications for the fiscal health of the federal
government, affecting federal crop and flood insurance programs, and
placing new stresses on infrastructure and natural resources.[Footnote
2]
The earth's climate system is driven by energy from the sun and is
maintained by complex interactions among the atmosphere, the oceans,
and the reflectivity of the earth's surface, among other factors.
Certain gases in the earth's atmosphere--such as carbon dioxide and
methane--are known as greenhouse gases because they trap energy from
the sun and prevent it from returning to space. Climate change is a
long-term and global issue because greenhouse gases disperse widely in
the atmosphere once emitted and can remain for extended periods of
time. According to the Intergovernmental Panel on Climate Change
(IPCC)--an organization within the United Nations that assesses
scientific, technical, and economic information on the effects of
climate change--atmospheric concentrations of carbon dioxide, the most
common greenhouse gas, rose 35 percent between pre-industrial times and
2005.[Footnote 3] The IPCC has determined that 11 of the 12 warmest
years on record occurred between 1995 and 2006 and expects that global
mean temperatures will continue to rise over the next century as a
result of increased atmospheric concentrations of greenhouse gases.
In 2006, carbon dioxide released from the burning of fossil fuels
accounted for approximately 78 percent of anthropogenic greenhouse gas
emissions in the United States. The remaining 22 percent of emissions
included carbon dioxide from nonenergy use of fossil fuels and iron and
steel production; methane from landfills, coal mines, oil and gas
operations, and agriculture; nitrous oxide from fossil fuels,
fertilizers, and industrial processes; and other gases emitted from
processes such as refrigeration, air conditioning, and semiconductor
manufacturing.[Footnote 4] In 2005, the United States was the largest
global emitter of carbon dioxide followed by China, Russia, Japan, and
India.[Footnote 5]
The United States, 190 other nations, and the European Economic
Community have ratified the United Nations Framework Convention on
Climate Change (the Framework Convention), which aims to stabilize
atmospheric greenhouse gas concentrations within a time frame
sufficient to allow ecosystems to adapt naturally to climate change, to
ensure that food production is not threatened, and to enable economic
development to proceed in a sustainable manner. Under the Kyoto
Protocol of the Framework Convention, 178 nations have agreed to reduce
their greenhouse gas emissions by at least 5 percent below 1990 levels,
by 2012. Also, in 2005, the European Union began implementing its
Emissions Trading Scheme (EU ETS), a program that limits emissions in
each member state and is intended to help states achieve their
commitments under the Kyoto Protocol. Many nations with significant
greenhouse gas emissions, including the United States, China, and
India, had not committed to binding limits on emissions through the
Kyoto Protocol or other mechanisms as of the date of this report.
However, in December 2007, the Conference of Parties, the supreme body
of the Framework Convention, announced the launch of the Bali Action
Plan, a comprehensive process that is expected to lead to a decision in
2009 on steps for countries to take on a post-2012 framework.
Instead of adopting limits on emissions, the United States government
has addressed climate change with policies that fall into three main
categories: (1) programs targeted at enhancing the scientific
understanding of climate change, including the Climate Change Science
Program (CCSP), directed by the Assistant Secretary of Commerce for
Oceans and Atmosphere; (2) programs that support research, development,
and deployment of new technologies that could reduce emissions and
improve energy efficiency, including the Climate Change Technology
Program (CCTP), led by the Department of Energy; and (3) voluntary
programs designed to encourage private and public sector entities to
curb their greenhouse gas emissions by providing technical assistance,
education, and information sharing, including the Environmental
Protection Agency's Climate Leaders Program.
The Congress is currently considering various proposals to further
address climate change, including actions to mitigate
emissions.[Footnote 6] Mitigation aims to limit the extent of climate
change, usually by decreasing greenhouse gas emissions. One possible
mitigation policy is an emissions trading program (referred to as a cap-
and-trade program). In general, under a cap-and-trade program, such as
the European Union's program, the government would limit the overall
amount of greenhouse gas emissions from regulated entities. These
entities would need to hold allowances for their emissions, and
depending on where the regulation was enforced in the economy, each
allowance would entitle them to emit 1 ton of carbon dioxide or to have
1 ton of carbon in the fuel they sold. The government could sell the
allowances or give them away (or some combination of the two), and
establish a market in which the regulated entities could trade the
allowances.[Footnote 7] For example, firms that find ways to reduce
their carbon dioxide emissions below their allowed limit could earn
revenue by selling their excess allowances to firms that emit more than
their limits.[Footnote 8] In this manner the market would establish a
price for a ton of carbon dioxide emissions based on the supply and
demand embodied in such trades. Although the program would provide
greater certainty that the level of annual emissions would not increase
beyond the emissions cap, the cost of the program could vary, depending
on factors such as changes in energy prices. Currently, the United
States uses a cap-and-trade program to limit pollutants that cause acid
rain emitted by electric utilities.
Another possible mitigation policy is a tax on greenhouse gas
emissions. A tax would establish a price on emissions by levying a
charge on every ton of carbon dioxide emitted, creating an economic
incentive for emitters of greenhouse gases to decrease their emissions
by, for example, using fossil fuels more efficiently. Unlike a cap-and-
trade program, a tax would provide certainty as to the cost of emitting
greenhouse gas emissions, but the precise effect of the tax in reducing
emissions would depend on the extent to which producers and consumers
respond to higher prices.[Footnote 9]
The Congress is also considering policies that, unlike a cap-and-trade
system or a tax, are not based on establishing a market for greenhouse
gas emissions. These options include regulatory approaches, such as
standards to increase energy efficiency or the use of renewable energy,
and nonregulatory approaches, such as investment in research and
development of technologies to reduce emissions. The Congress is also
considering measures to adapt to climate change, such as developing
protective coastal infrastructure to reduce the impact of rising sea
levels. The potential benefits and costs associated with a policy, or
combination of policies, depend on factors such as their stringency,
timing, and effectiveness of stabilizing or reducing greenhouse gas
concentrations.
Much of the debate over the direction of U.S. policy to address climate
change has centered on the effects that further policy actions could
have on economic growth. For decades, economists have sought to inform
this debate by analyzing the potential benefits and costs of actions to
address climate change. The benefits of such actions could include
avoided damages that may result from changing temperatures. For
example, many scientists believe slowing the increase in global mean
temperatures and the related rise in sea level may limit damage to
coastal areas, which are home to the majority of the U.S. population
and account for nearly one-third of the gross domestic
product.[Footnote 10] On the other hand, actions to address climate
change would impose costs because most emissions stem from the
combustion of fossil fuels, which constitute the majority of the
nation's energy supply. Thus, actions to mitigate emissions would
likely impose higher costs on producers and users of fossil fuels.
To analyze the economic impacts of different policies for addressing
climate change, economists have developed sophisticated models that
incorporate historical data on the economic effects of changes in
energy prices and assumptions about future economic and climatic
conditions. These models focus primarily on the benefits and costs of
using market-based mechanisms to impose a price on greenhouse gas
emissions and generally place a greater emphasis on analyzing the
effect on market goods and services, such as fossil fuels, that have
readily available prices, than on analyzing the effect on nonmarket
goods such as ecological impacts. Key assumptions underlying these
models include the degree of international cooperation in mitigating
emissions, the rate of technological change, the sensitivity of the
climate to changes in emissions, and the degree to which societies
adapt to the impacts of climate change.
In using the models to estimate the benefits and costs associated with
controlling greenhouse gas emissions, economists have estimated the
potential economic effect of establishing a price on greenhouse gas
emissions. According to economic theory, the appropriate emissions
price should reflect the social costs that result from
emissions.[Footnote 11] For example, in a survey of the economic
literature, the IPCC reported that estimates of the damages associated
with current greenhouse gas emissions--impacts on public health,
ecosystems, and industry--average about $12 per metric ton of carbon
dioxide, with a range from $3 to $95 per ton (2005 dollars).[Footnote
12] The wide range of estimates primarily reflects differences in the
models used and key assumptions.
In this context, you asked us to elicit the opinions of experts in the
field of climate change economics on (1) actions the Congress might
consider to address climate change and what is known about the
potential benefits, costs, and related uncertainties of these actions
and (2) the key strengths and limitations of policies or actions to
address climate change. To respond to these objectives, we collaborated
with the National Academy of Sciences (NAS) to identify and recruit
experts with experience analyzing the economic effects of climate
change policies. NAS recruited 25 experts affiliated with U.S.-based
institutions who have conducted research on the benefits, costs, or
uncertainties associated with actions to address climate change, and
with in-depth experience in assessing the economic impacts and trade-
offs of climate change policies. The experts who served on the panel
represent the range of existing research on the economics of climate
change, with expertise in areas such as environmental, natural
resource, and agricultural economics, and some have served as advisors
to the United States government, including as members of the Council of
Economic Advisors under the current and former administrations.
To address the first and second objectives, we (1) reviewed relevant
climate change academic literature and documents developed by federal
agencies and (2) met with agency officials from the Environmental
Protection Agency (EPA); the Department of Energy (DOE), including the
Energy Information Administration (EIA); the Department of Commerce,
including the National Oceanic and Atmospheric Administration (NOAA);
the United States Department of Agriculture (USDA); and the National
Aeronautics and Space Administration (NASA). To structure our questions
and gather opinions from the panelists on our objectives, we used a
modified Delphi method, an iterative and controlled feedback approach.
With two Web-based questionnaires, we first gathered opinions from the
panel on the key topics, and used their responses to develop the second
round of questions. In the second round, panelists reacted to the
issues and topics discussed in the first round, answering primarily
closed-ended questions. We used this approach to eliminate the
potential bias associated with live group discussions, and to
incorporate more panelists than a live panel would allow. Including
more panelists also enabled us to obtain the broadest possible range of
opinion. Of the 25 panelists NAS recruited to participate, 21 agreed
and were sent the first questionnaire. Nineteen responded to the first
questionnaire, and 18 responded to the second. After the responses from
the second round were compiled, the panelists were given 2 weeks to
comment on a summary of the results. In addition, we followed up with
several panelists to verify their responses and elaborate on certain
topics. The information presented in this report is primarily from the
second questionnaire and represents the views of the 18 experts who
participated in both rounds and not GAO's (See app. I for a more
detailed description of our scope and methodology). We conducted our
work from September 2006 to May 2008.
Results in Brief:
All of the economists on the panel agreed that the Congress should
consider establishing a price on greenhouse gas emissions using a
market-based mechanism but expressed differing views on the type of
mechanism and its stringency. In addition, a majority of panelists
recommended implementing a portfolio of actions, including at least one
complementary policy action in areas such as research and development,
adaptation, or international negotiations and assistance. In terms of
the mechanism for establishing a price, 8 panelists preferred a cap-
and-trade system with the government having the ability to use a cost
control mechanism (called a safety valve) if the price of permits
exceeds certain levels, 7 preferred a tax on emissions, and 3 preferred
a cap-and-trade system without the safety valve. Despite key
uncertainties associated with estimating potential costs and benefits,
14 of the 18 panelists said they were at least moderately certain that
the benefits of their preferred portfolio of actions would outweigh the
costs, and 4 did not respond to questions on this topic. With respect
to the stringency of their recommended market-based mechanism, 7
panelists said the price per ton of emissions should range from less
than $1 to $10, 7 said from $11 to $20, and 3 said it should exceed $20
(2007 dollars).[Footnote 13] In addition, the majority of panelists
said that the price on emissions should gradually increase over time.
Further, all of the panelists said that the price should be implemented
by 2015, and that it should apply to all sectors of the economy.
Panelists identified general categories of potential benefits and costs
and provided some quantitative estimates or cited estimates from
related studies. The panelists rated avoided climate change damages as
the most important type of benefits; these damages may include flooding
from rising sea levels and extreme weather events. Some panelists also
provided cost estimates for their preferred actions and cited key
studies underlying those estimates. Overall, the panelists said that
estimates of costs are more useful for informing congressional decision
makers than estimates of benefits, but all of the panelists that
responded to the applicable questions on this topic said that the
estimates of costs and benefits from integrated assessment models were
at least somewhat useful. The panelists identified key uncertainties
that affect these estimates, including uncertainty about the extent to
which rising temperatures could lead to abrupt changes in the climate
system, the science of climate change, and the potential economic
effects of actions to address climate change. Despite these
uncertainties, 16 of the 18 panelists agreed that the United States
should limit emissions as soon as possible, regardless of the efforts
of other nations to adopt similar policies. At the same time, the
majority of the panelists said that it was at least somewhat important
to participate in international negotiations, either to facilitate
climate agreements or to enhance the credibility or influence of the
United States.
Panelists identified key strengths and weaknesses of alternative policy
approaches that should be of assistance to the Congress in weighing the
potential benefits and costs of different policies for addressing
climate change. Notably, the experts discussed the greater certainty of
attaining emissions targets under a cap-and-trade system versus the
greater efficiency of a tax in achieving emissions reductions at a
lower cost. On average, they rated cost-effectiveness as the most
important criterion for evaluating various policy options, and used it
and other important criteria to compare the strengths and limitations
of different actions to address climate change. Some panelists said
that a cap-and-trade program would be more effective in achieving a
desired level of greenhouse gas emissions because, unlike a tax, it
would provide certainty that emissions would not exceed a certain
level. However, some of the panelists also said that taxes were more
economically efficient than a cap-and-trade program because the price
of emissions would be certain and would not be susceptible to market
fluctuations that could lead to increased costs. In addition, some
panelists felt a cap could be more administratively burdensome than a
tax. Nonetheless, some of the panelists that preferred a tax said that
a cap-and-trade program, especially if it included cost-minimizing
components, would be an acceptable second option to address climate
change. Eight panelists preferred a hybrid approach where the
government would create a cap-and-trade system with the option of
selling additional permits if the market price of permits exceeded a
certain level, thereby minimizing risks of adverse economic
consequences. However, the emissions reductions achieved by a hybrid
program would be less certain than a standard cap-and-trade program if
the price control mechanisms came into effect. As for distributing
emissions permits under a cap-and-trade or hybrid program, the majority
of panelists favored at least partial auctioning of permits rather than
free distribution. They noted that the government could redistribute
revenue from permit auctions to offset adverse effects on consumers or
particular sectors of the economy. The panelists also discussed the
strengths and limitations of other policy options, including research
and development of technologies, adaptation to the anticipated impacts
of climate change, revising energy efficiency standards, and reforming
subsidies for fossil fuel production and other industries.
Background:
Greenhouse gases--including carbon dioxide, methane, nitrous oxide, and
other substances--trap a portion of the sun's heat in the atmosphere
and prevent the heat from returning to space. The insulating effect,
known as the greenhouse effect, moderates atmospheric temperatures,
keeping the earth warm enough to support life. According to the
Intergovernmental Panel on Climate Change (IPCC), global atmospheric
concentrations of these greenhouse gases have increased markedly as a
result of human activities over the past 200 years, contributing to a
warming of the earth's climate.[Footnote 14]
The IPCC generally attributes increases in average global air and ocean
temperatures, widespread melting of snow and ice, and rising mean
global sea levels to a warming of the earth's climate system.
Furthermore, according to the IPCC, the oceans have absorbed more than
80 percent of the heat added to the earth's climate system, causing
seawater to expand, thereby contributing to sea level rise. Scientists
have also reported that mountain glaciers and snow cover have declined,
on average, in both hemispheres, and that widespread decreases in the
sizes of glaciers and polar ice caps, combined with losses in the ice
sheets of Greenland and Antarctica very likely contributed to a sea
level rise of 0.17 meters during the 20th century.
The effect of increases in atmospheric concentrations of greenhouse
gases and temperature on ecosystems and economic growth is expected to
vary across regions, countries, and economic sectors (see table 1).
Table 1: Potential Impacts of Climate Change by Sector:
Sector: Agriculture, forestry, and ecosystems;
Major projected impacts:
* Increased yields in colder environments;
* Decreased yields in warmer environments;
* Increased insect outbreaks;
* Increased danger of wildfires;
* Damage to crops;
* Waterlogging of soils;
* Land degradation;
* Increased livestock deaths;
* Uprooting of trees;
* Damage to coral reefs;
* Salinization of irrigation water, estuaries, and freshwater systems.
Sector: Water resources;
Major projected impacts: * Effects on some water resources, such as
increased salinization of groundwater and decreased availability of
freshwater for humans and ecosystems;
* Increased water demand;
* Water quality problems;
* Adverse effects on quality of surface and groundwater;
* More widespread water scarcity;
* Power outages causing disruption of public water supply;
* Decreased freshwater availability due to saltwater intrusion.
Sector: Human health;
Major projected impacts: * Reduced human mortality from decreased cold
exposure;
* Increased risk of heat- related mortality;
* Increased risk of deaths, injuries, and infectious respiratory and
skin diseases;
* Increased risk of food and water shortage;
* Increased risk of malnutrition;
* Increased risk of water- and food-borne diseases;
* Increased risk of deaths and injuries by drowning and floods.
Sector: Industry, settlement, and society;
Major projected impacts: * Reduced energy demand for heating;
* Increased energy demand for cooling;
* Declining air quality in cities;
* Reduced disruption to transport due to snow, ice;
* Disruption of settlements, commerce, transport, and societies due to
flooding;
* Pressures on urban and rural infrastructures;
* Water shortages for settlements, industry, and societies;
* Reduced hydropower generation potential;
* Potential for population migration;
* Disruption by flood and high winds;
* Withdrawal of risk coverage in vulnerable areas by private insurers;
* Costs of coastal protection versus costs of land use relocation;
* Potential for movement of populations and infrastructure.
Source: IPCC, Working Group III, AR4, Summary for Policymakers:
[End of table]
Figure 1: Potential Impacts of Climate Change by Geographic Region:
This figure us a map accompanied with text showing potential impacts of
climate change by geographic region.
North America:
* Decreased snowpack, more winter flooding, and reduced summer flows,
exacerbating competition for already limited water resources in western
mountains;
* Extended periods of high fire risk and large increases in area burned
in forest areas;
* Increased aggregate yields of rain-fed agriculture, but with
variability among regions;
* Increased heatwaves with greater intensity and frequency in cities
that currently experience heatwaves;
* Increased vulnerability to climate variability and future climate
change due to population growth and the rising value of infrastructure
in coastal areas, with current adaption uneven and readiness for
increased exposure low;
Latin America:
* Gradual replacement of tropical forest by savanna in eastern Amazonia
(by midcentury);
* Significant biodiversity loss in many areas of tropical Latin
America;
* Decreased agricultural productivity, with adverse consequences for
food security in drier areas;
* Increased flooding in low-lying areas and increasing sea surface
temperatures, adversely affecting coral reefs and causing shifts in the
location of southeastern Pacific fish stocks;
* Decreased water availability for human consumption, agriculture, and
energy generation;
* Effectiveness of adaptation efforts outweighed by the lack of
capacity building and appropriate political, institutional, and
technological frameworks;
Polar regions:
* Reduced thickness and extent of glaciers and ice sheets and changes
in natural ecosystems;
* Detrimental impacts on infrastructure and traditional indigenous ways
of life in the Arctic;
* Beneficial impacts including reduced heating costs and more navigable
northern sea routes;
* Increased vulnerability for specific ecosystems and habitats in both
polar regions as climate barriers to species invasions are lowered;
Small islands:
* Adverse impacts on local resources, such as fisheries, reducing the
value of these destinations for tourism;
* Increased flooding, storm surge, erosion, and other coastal hazards,
threatening vital infrastructure, settlements, and facilities of island
communities;
* Substantially decreased freshwater availability;
* Increased invasion by non-native species, particularly on midlatitude
islands;
Africa:
* Extensive increases in water scarcity (by 2020);
* Severely compromised agricultural production (by 2020);
* Negative effects on local food supplies;
* Projected sea-level rise will affect heavily populated low-lying
coastal areas (by 2100);
* High vulnerability to impacts due to low adaptive capability;
Asia:
* Increased flooding, avalanches, and water scarcity in the Himalayas;
* Increased freshwater scarcity in Central, South, East, and Southeast
Asia (by 2050s);
* Increased risk of flooding in heavily populated megadeltas in South,
East, and Southeast Asia;
* Increased crop yields in East and Southeast Asia will be offset by
decreased crop yield in Central and South Asia; coupled with rapid
urbanization and population growth, the risk of hunger is expected to
remain very high in several developing countries;
* Increased health risks associated with flooding, droughts, and
increasing coastal water temperatures;
Australia and New Zealand:
* Increased water scarcity in southern and eastern Australia and New
Zealand (by 2030);
* Significant biodiversity loss in ecologically rich sites such as the
Great Barrier Reef (by 2020);
* Increased risk to coastal development and population growth due to
sea-level rise and increases in the severity and frequency of storms
and coastal flooding (by 2050);
* Decreased agricultural and forestry productivity for much of southern
and eastern Australia and parts of eastern New Zealand;
* Longer growing seasons in western and southern New Zealand;
Europe:
* Increased risk of inland flooding, and coastal flooding and increased
coastal erosion;
* Glacier retreat, reduced snow cover and winter tourism, and extensive
species loss in mountainous areas (by 2080);
* Higher temperatures, increased drought, reduced water availability
and crop productivity, increased health risks, and increased frequency
of wild fires in Southern Europe;
* Decreased summer precipitation, reduced water availability, increased
health risks, reduced forest production, and increased frequency of
peatland fires in Central and Eastern Europe;
* Decreased demand for heating, increased crop yields, and forest
growth in Northern Europe outweighed by increased frequency of winter
floods and endangered ecosystems;
[See PDF for image]
Source: GAO and Map Resources based on IPCC analysis.
[End of figure]
For example, small island nations are particularly at risk because of
their vulnerability to sea level rise, poor coastal infrastructure, and
economies that rely heavily on coastal fishing and tourism.
Alternatively, while certain areas of the United States may be
adversely affected by rising sea levels, its diverse economy,
significant resources, and established infrastructure may help moderate
the negative effects associated with climate change. Figure 1 shows a
selection of projected impacts from climate change on different
regions, assuming that greenhouse gas emissions and concentrations
continue to increase at current rates.
According to the IPCC, in 2004, developed countries, including the
United States, constituted 20 percent of global population, but were
responsible for nearly half of global greenhouse gas
emissions.[Footnote 15] However, in the absence of mitigation policies,
the IPCC projects that between 2000 and 2030, two-thirds to three-
quarters of the projected increase in global carbon dioxide emissions
will occur in developing countries.[Footnote 16]
Mitigating Greenhouse Gas Emissions:
Many developed countries have begun to mitigate or reduce greenhouse
gas emissions by adopting policies such as carbon taxes, cap-and-trade
programs, energy efficiency standards, financial incentives (e.g.,
subsidies or tax credits), voluntary agreements, education campaigns,
and research, development, and deployment of advanced
technologies.[Footnote 17] For example, the European Union Emission
Trading Scheme (EU ETS) is a cap-and-trade system in which energy-
intensive industries in the European Union buy or sell emission
allowances to help meet member states' commitments under the Kyoto
Protocol. The EU ETS covers over 11,000 energy-intensive installations,
such as oil refineries and steel plants, in 25 member countries and
covering nearly half of Europe's carbon dioxide emissions. Governments
may also use a portfolio of policies; for example, a cap-and-trade
system may be pursued in combination with energy efficiency standards
and financial incentives for certain sectors. Table 2 shows selected
policies and instruments that have been shown to be environmentally
effective at a national level.
Table 2: Selected Policies, Measures, and Instruments Currently Used by
Various Nations to Address Climate Change:
Sector: Energy Supply;
Policies, measures, and instruments: * Reduction of fossil fuel
subsidies;
* Taxes or carbon charges on fossil fuels;
* Incentives for renewable energy;
* Public research, development, and deployment of low-emission
technologies.
Sector: Transportation;
Policies, measures, and instruments: * Mandatory fuel economy
standards, biofuel blending, and CO2 standards for road transport;
* Taxes on vehicle purchase, registration, and use, and on motor fuels,
road and parking pricing;
* Land use regulations and infrastructure planning;
* Investment in public transport facilities and nonmotorized forms of
transport;
* Public research, development, and deployment investment in low-
emission technologies.
Sector: Buildings;
Policies, measures, and instruments: * Appliance standards and
labeling;
* Building codes and certification;
* Demand- side management programs to incentivize customers to purchase
energy- efficient products;
* Public sector leadership programs, including procurement requirements
for governments;
* Incentives for energy service companies;
* Public research, development, and deployment investment in low-
emission technologies.
Sector: Industry;
Policies, measures, and instruments: * Performance standards;
* Subsidies, tax credits;
* Tradable permits;
* Voluntary agreements;
* Public research, development, and deployment investment in low-
emission technologies.
Sector: Agriculture;
Policies, measures, and instruments: * Financial incentives and
regulations for improved land management, maintaining soil carbon
content, efficient use of fertilizers and irrigation;
* Public research, development, and deployment investment in low-
emission technologies.
Sector: Forestry;
Policies, measures, and instruments: * Financial incentives (national
and international) to increase forest area, to reduce deforestation,
and to maintain and manage forests;
* Land use regulation and enforcement;
* Public research, development, and deployment investment in low-
emission technologies.
Sector: Waste management;
Policies, measures, and instruments: * Financial incentives for
improved waste and wastewater management;
* Renewable energy incentives or obligations;
* Waste management regulations;
* Public research, development, and deployment investment in low
emission technologies.
Source: IPCC, Working Group III, AR4, Summary for Policymakers.
[End of table]
In addition, carbon capture and storage can supplement other climate
change mitigation policies. Carbon capture and storage involves
separating and storing carbon dioxide from an industrial or energy-
related source, thereby preventing carbon dioxide emissions into the
atmosphere. Carbon capture and storage is most commonly used to enhance
oil and gas recovery in depleted fields. Efforts to capture carbon
dioxide from power generation or industrial processes are currently the
main focus of research and development of the technology. This process
has the potential to reduce emissions, but its widespread use may be
limited by several barriers, including technological feasibility,
costs, regulatory issues, and environmental concerns.
Another option is to allow for carbon offsets, which is a way for
consumers and producers to compensate for greenhouse gas emissions
occurring in one location by reducing or avoiding emissions somewhere
else. For example, a manufacturing facility in the United States could
compensate for its emissions by purchasing carbon offsets from a tree-
planting project in South America. Carbon offsets are traded in
compliance markets, to satisfy requirements to limit emissions, and in
voluntary markets, where emissions reductions are not required but may
serve other purposes. For example, carbon offsets serve as a mechanism
for complying with the emissions reduction requirements of the EU ETS.
Under this scheme, certain regulated entities may choose to comply with
emissions limits by purchasing offsets rather than by reducing their
own emissions.
Adaptation Policies to Reduce Vulnerability to Climate Change:
In addition to mitigating greenhouse gas emissions, policies to adapt
to climate change could help reduce the vulnerability of countries and
regions to potentially adverse impacts. For example, raising river or
coastal dikes could protect coastal communities and resources from sea
level rise. The vulnerability of a country or region depends on both on
the susceptibility of a political, economic, or natural system to the
adverse effects of climate change and the capacity of a society to
adjust to the expected change. For example, less developed economies
may face difficulty adapting to climate change because of poor
infrastructure, poverty, and resource constraints. Adaptation may be
viewed as a risk-management strategy for protecting vulnerable
countries, sectors, and communities that might be affected by changes
in the climate and related impacts.
In December 2007, members of the Conference of the Parties to the
Framework Convention agreed to launch a comprehensive process that will
lead to the adoption of a decision in 2009 on next steps for countries
to take on climate change. This process, called the Bali Action Plan,
includes provisions that require signatories, including the United
States, to undertake efforts to enhance international cooperation on
adaptation, such as vulnerability assessments; capacity building; risk
management; and reduction strategies; and the integration of adaptation
into planning decisions.[Footnote 18]
Estimating the Potential Benefits and Costs of Actions to Address
Climate Change:
Economists and other researchers have developed integrated assessment
models that utilize economic and climate and other environmental data
to assess the economic consequences associated with different policies
for addressing climate change. These models vary in structure and
scope, but generally include historical data on the U.S. and
international economies, emissions and atmospheric concentrations of
greenhouse gases, and global temperature. Typically, economists use the
models to estimate the economic consequences of policy actions, by
comparing the present values of the economic costs of an action such as
tax or cap and trade and the future benefits it would be expected to
generate, relative to a business-as-usual emissions projection (for
example, no significant reductions in greenhouse gas emissions). In
judging whether a policy action would be preferable, economists
evaluate policies using criteria such as (1) economic efficiency, where
the action maximizes potential net benefits (total benefits minus total
costs), compared to business as usual and (2) cost-effectiveness, where
the action achieves the chosen policy objective, such as an emissions
reduction target, at least cost.
In general, the economic costs that society would incur from taking
action to address climate change will begin to occur immediately, while
the economic and environmental benefits will mainly occur decades in
the future as atmospheric concentrations of greenhouse gases and global
temperatures stabilize. The economic costs of taking action represent
the value of the goods and services that society would forgo to
allocate resources to the emissions control policy, including
compliance expenditures, administration and enforcement costs, and
other costs that the action might impose on the economy (for example,
as a result of higher prices). For example, because the energy sector
and energy-intensive industries generate substantial emissions of
greenhouse gases, a significant component of the potential cost
associated with actions to address climate change relates to the
impacts of changes in energy prices. The economic costs of reducing
emissions to stabilize atmospheric greenhouse gas concentrations will
increase as the stringency of emissions reduction goals increase, and
correspondingly, as the stabilization goal decreases.
The potential economic benefits of policies to address climate change
generally consist of the effects of stabilizing or reducing the
atmospheric concentration of greenhouse gases and global temperature on
human welfare. Typically, benefits are measured in terms of the damages
that would be averted if an action were taken to address climate
change. For example, under a business-as-usual scenario, researchers
project that further increases in atmospheric concentrations of
greenhouse gases and global temperature could reduce agricultural
productivity in certain parts of the world, increase the incidence of
diseases in certain climates, and reduce the environmental goods and
services provided by some ecosystems. In addition, researchers have
estimated that limiting greenhouse gas emissions and slowing the
increase in atmospheric concentrations and global temperature would
avoid some damages.
Estimating the potential benefits associated with actions to address
climate change, however, can pose challenges, partly because of
uncertainty about the magnitude of climate impacts and the resulting
effect on human welfare. In particular, scientists face challenges
estimating the effects of climate change at the regional and local
level. In addition, rising global temperature could involve
unexpectedly abrupt changes in the climate, which would be more costly
than if changes are more moderate. According to NAS, global warming and
other human alterations of the earth's climate system may increase the
possibility of large and abrupt regional or global climatic events.
However, NAS concluded that because the abrupt climate changes of the
past are not yet fully explained, future abrupt changes cannot be
predicted with any confidence and climate surprises are to be
expected.[Footnote 19] In addition, partly because many of the
environmental goods and services expected to be affected by climate
change are generally not bought and sold in markets, it is difficult to
develop reliable estimates of the value associated with the damages
expected from climate change.[Footnote 20]
Furthermore, estimating the economic consequences of various actions to
address climate change involves consideration of the fact that the
benefits and costs will occur in different time periods and should be
expressed in comparable present value terms. For example, because
greenhouse gases accumulate in the atmosphere over very long periods of
time, the effect of current actions to stabilize concentrations and
global temperature might take decades to manifest themselves. As a
result, the future benefits and costs of actions to address climate
change are typically discounted (by using a discount or interest rate)
to estimate their present value. In general, discounting is used to
reflect the extent to which individuals trade off current for future
consumption. Nonetheless, because discounting generally attaches a
lower weight to future impacts compared to near-term impacts, the
choice of the discount rate is an important factor in assessing the
economic consequences of actions to address climate change.[Footnote
21]
Moreover, although the cost of any U.S. action to address climate
change will be primarily borne by U.S. producers and consumers, the
economic benefits associated with the action would also accrue to other
countries that face greater vulnerability to climate change. According
to the IPCC, the global distribution of climate change impacts varies
throughout the world and nonclimate stresses such as poverty and food
insecurity can increase a country's vulnerability to climate change by
reducing its resilience and capacity to adapt. For example, the IPCC
estimated that Africa could face increased risk of water scarcity and
reduced food security.[Footnote 22] However, because African nations
account for a negligible share of total greenhouse gas emissions, it is
expected that they will bear a much smaller portion of the overall
costs or responsibility for greenhouse gas mitigation.
Climate Change Policies Currently under Consideration by the Congress:
The eight climate change mitigation bills currently under consideration
by the Congress provide an overview of the potential for simultaneously
pursuing a portfolio of actions. All eight bills include provisions for
a cap-and-trade system in combination with initiatives to promote the
development and adoption of low-carbon technologies.[Footnote 23] Also,
three bills would require that a specific amount of electricity be
generated by renewable energy--generally called a Renewable Portfolio
Standard--including wind and solar energy, and energy efficiency
performance standards. Five bills would apply the emissions caps to
specific sectors of the economy, such as electricity, transportation,
and industry, while caps under the other three would not be limited to
specific economic sectors.
Despite Some Uncertainty Regarding the Potential Economic Impact, All
of the Panelists Supported Establishing a Price on Greenhouse Gas
Emissions:
All of the panelists agreed that the Congress should consider
establishing a price on greenhouse gas emissions using a market-based
mechanism, but they expressed differing views on the type of mechanism
and its stringency. In addition, 14 of the 18 panelists were at least
moderately certain that the benefits of their suggested portfolio of
actions would outweigh the costs.[Footnote 24] Most of the panelists
identified either a tax on emissions or a cap-and-trade program with a
safety valve as the preferred mechanism to establish a price on
emissions, and the majority believed a portfolio of additional actions
to address climate change could complement the market-based mechanism.
Some panelists also identified general categories of benefits and costs
associated with their recommended actions, and rated the usefulness of
benefit and cost estimates derived from integrated assessment models.
Overall the panel rated estimates of costs as more useful than
estimates of benefits for informing congressional decision making, with
some panelists citing uncertainties associated with the future impacts
of climate change as a limitation to estimating benefits. Finally,
while some panelists said that the United States should proceed
cautiously if it acts unilaterally, the majority of panelists agreed
that it should establish a price on greenhouse gas emissions as soon as
possible regardless of the extent to which other countries adopt
similar policies.
All of the Panelists Agreed that the Congress Should Consider
Establishing a Price On Greenhouse Gas Emissions, and the Majority
Recommended Complementary Policies:
All of the panelists agreed that the Congress should consider a market-
based mechanism to establish a price on greenhouse gas emissions and
supported implementation of the policy by 2015. Opinions varied on
whether the Congress should implement a cap-and-trade system or a tax
to control greenhouse gas emissions, with eight panelists preferring a
cap-and-trade program with a safety valve (sometimes referred to as a
hybrid system), seven preferring a tax, and three preferring a cap-and-
trade program. All of the panelists agreed that the policy should
target all sectors of the economy, and the majority believed that it
should include all greenhouse gases. For example, one panelist stated
that by establishing a price on emissions from all sources in the
United States with no exceptions, the policy would equilibrate the
marginal cost of reducing emissions across all sources, making it
economically efficient.
The panelists varied in their views on the stringency of the market-
based regulatory mechanism that they supported to place a price on
greenhouse gas emissions.[Footnote 25] For example, in proposing an
initial price on emissions, seven panelists said it should range from
less than $1 to $10, six said from $11 to $20, and four said it should
be greater than $20 (2007 dollars per metric ton of carbon dioxide
equivalent).[Footnote 26] In addition, while most panelists said the
price should increase over time, they varied in their views on the
preferred rate of increase. For example, some panelists provided
estimates ranging from 2 percent to 5 percent per year adjusted for
inflation, while another panelist said more generally that it should be
reevaluated periodically (for example, every 5 years) and rise as
marginal damages of climate change rise. Some panelists noted the
importance of a long-term commitment to establish a price on emissions
and the flexibility to adjust the price and rate of increase as new
information becomes available. For example, one panelist stated that
certainty in setting emissions reductions goals was necessary for firms
that would have to make substantial investments in new emissions
reduction technologies. Another panelist added that while the program
should run into the distant future, it should include an explicit
feature to revise taxes or emissions targets based on near-term
mitigation experience, new research on climate change science and
impacts, and actions by other countries.
Under a hybrid approach, the government would establish a cap-and-trade
system with a safety valve, a mechanism under which the government
would sell additional permits if the market price exceeded a
predetermined level, which would represent the maximum permit price and
thus an upper limit on control costs. A safety valve price would be
established, which would represent the maximum permit price and thus an
upper limit on control costs. Panelists preferring a hybrid policy
varied in their recommendations for an initial safety valve price, with
five preferring a safety valve price identical or close to their
targeted initial market price for greenhouse gas emissions and two
recommending a price moderately or well above their recommended market
price (see app. II for additional information on this topic). For
example, a panelist recommending a targeted initial market price of
$0.55 per metric ton of emissions (in carbon dioxide equivalent)
recommended an identical safety valve price, adding that the price
should not be much higher than the targeted marginal cost of reducing
emissions. Another panelist recommending an initial market price
between $11 and $20 said that the safety valve should depend on the
stringency of the policy. When providing an example, the panelist added
that if the initial market price per metric ton of emissions was $20,
then the safety valve should be set three to four times above the
initial price of emissions, or between $60 and $80 (See app. II for
additional information on this topic).
In addition, seven of the eight panelists that prefer a hybrid policy
believe that the price of the safety valve should increase over time,
and the majority of panelists said that the safety valve should be
reevaluated periodically based on new information. For example, one
panelist said that the safety valve price should increase by 2.5
percent plus inflation annually, and that the government should
reevaluate the stringency of the policy every 5 to 10 years based on
new information. Another panelist said that the safety valve provision
could be abandoned altogether after a periodic review of the adequacy
of the policy and its costs.
Overall, eight of the panelists said that a market-based mechanism
should be imposed "upstream," where fossil fuels first enter the
economy, four preferred a "downstream" mechanism that regulated direct
and indirect emitters, and five preferred a mechanism with both
upstream and downstream components. An upstream system would require
fossil fuel producers, such as extractors and processors, and
importers, to pay a tax or to hold permits based on the carbon content
of the fuels. Alternatively, a downstream system would regulate sources
such as electric utilities that combust fossil fuels and emit
greenhouse gases. While environmental effectiveness would likely be the
same under either approach, one panelist said that an upstream policy
would have lower administrative costs when compared to a downstream
system partly because it involves a much more manageable set of firms.
Of the panelists who said they preferred a combination of upstream and
downstream provisions, three preferred a policy that had downstream
provisions for carbon capture and storage from utilities or other
processes that remove carbon from the atmosphere. See appendix II for
additional information on experts' preferred design for a market-based
policy.
In the second round questionnaire, we asked panelists to rate the
importance of complementary actions to address climate change that had
been recommended in the first round. We also asked panelists to
identify their recommended portfolio of actions for the Congress to
consider. When rating the importance of recommended actions, the
panelists gave the highest average ratings to funding of research,
development, and deployment of zero-carbon and low-carbon technologies,
and participation in international negotiations (see fig. 2 and app.
III for more detail). For example, recognizing that the private sector
may not invest in some technologies, one panelist recommended public
investment to accelerate development of carbon capture and storage from
electricity generation. This panelist also advocated expanded research
into climate change adaptation in the southern United States and in
developing countries for agriculture, forestry, and fisheries,
emphasizing the importance of preparing for inevitable climate impacts.
Another panelist recommended that the United States engage in
international negotiations to make similar emissions reductions
commitments, and added that the United States should consider helping
other countries meet their targets as a part of international aid.
Figure 2: Mean Panelist Ratings of the Importance of Additional Policy
Options to Address Climate Change:
This figure is a horizontal bar graph showing mean panelists ratings of
the importance of additional policy options to address climate change.
The X axis is the mean response on importance scale, and the Y axis is
the policy options.
1: Not important at all;
2: Somewhat important;
3: Moderately important;
4: Quite important;
5: Extremely important;
Policy options: Participating in international negotiations to
facilitate participation in climate agreements or to enhance U.S.
credibility/influence;
Mean response on importance scale: 4.47.
Policy options: Funding R&D and/or deployment of low- or zero-carbon
technologies;
Mean response on importance scale: 3.44.
Policy options: Creating an independent oversight board to establish,
monitor, and revise the mechanism for controlling greenhouse gases (tax
or cap and trade);
Mean response on importance scale: 3.31.
Policy options: Providing international assistance to developing
countries (as compensation for climate impacts or to deploy low-carbon
technologies);
Mean response on importance scale: 3.22.
Policy options: Reforming subsidies for alternative fuels or energy
efficient technologies;
Mean response on importance scale: 3.18.
Policy options: Funding efforts to adapt to impacts of climate change
by reforming agricultural subsidy programs, land use practices, flood
control, etc.;
Mean response on importance scale: 3.17.
Policy options: Developing or revising technology efficiency standards
(for fuels or energy use);
Mean response on importance scale: 2.71.
Policy options: Funding private sector R&D to achieve cost-effective
emission reductions in developing countries;
Mean response on importance scale: 2.44.
Policy options: Funding R&D on domestic and international public health
impacts that could arise as a result of climate change;
Mean response on importance scale: 2.33.
Policy options: Levying a graduated tax on cars and light trucks
(including SUVs), based on fuel economy;
Mean response on importance scale: 2.28.
[See PDF for image]
Source: GAO analysis.
[See PDF for image]
Note: Total responses for each question may range from 15 to 18. See
appendix III for additional details.
[A] Providing international assistance would include compensation for
climate change impacts or assistance deploying low-carbon technologies.
[End of figure]
When recommending a portfolio of policy options for the Congress to
consider, 14 of the 18 panelists identified actions to address climate
change in addition to placing a price on greenhouse gas emissions (see
app II, table 4, for more detail). Of the 14 holding this view, 10 said
research and development in low-or zero-carbon technologies or research
in the basic science of climate change should be part of the portfolio,
7 said international negotiations or assistance to developing countries
should be included, and 6 said adaptation should factor into a
portfolio of actions (see app. II, table 4, for more detail). When
asked how certain they were that their recommended portfolio of actions
to address climate change were economically justified, 14 of the 18
panelists were at least moderately certain that the benefits of their
suggested actions would outweigh the costs. The remaining 4 panelists
did not know or did not provide a response to this question.
Panelists Described the Potential Benefits and Costs of Actions to
Address Climate Change:
In the first questionnaire, we asked panelists to identify potential
categories of costs and benefits associated with actions to address
climate change. In the second questionnaire, we asked them to rate the
importance of categories of benefits as a rationale for addressing
climate change.[Footnote 27] On average, panelists rated avoiding
damages such as those from flooding, impacts on sensitive ecosystems,
public health, and species loss as the most important category of
potential benefits (see fig. 3 and app. III for more detail). In
addition, panelists rated reducing risk of extreme or irreversible
climate events as the second most important category of potential
benefits. For example, one panelist discussed the benefits of reducing
the probability of abrupt or catastrophic climate events such as
dramatic sea level rise by stabilizing atmospheric concentrations of
greenhouse gases. Another noted the importance of avoiding damages by
reducing the risks of vulnerability to water scarcity, hunger, or the
frequency of storm events.
Figure 3: Mean Panelist Ratings of the Importance of General Categories
of Potential Benefits as a Rationale for Addressing Climate Change:
This figure is a horizontal bar graph showing the mean panelist ratings
of the importance of general categories of potential benefits as a
rationale for addressing climate change. The X axis represents mean
responded on importance scale. The Y axis represents the benefits.
1: Not important at all;
2: Somewhat important;
3: Moderately important;
4: Quite important;
5: Extremely important;
Benefits: Avoided climate change damages (including flooding, extreme
weather events, crop damage, impacts on sensitive ecosystems, public
health, and species loss);
4.24.
Benefits: Reducing risk or the likelihood of extreme events associated
with climate change;
Mean response on importance scale: 4.06.
Benefits: Establishing a price signal to influence market or individual
behavior;
Mean response on importance scale: 3.94.
Benefits: Facilitation of international cooperation on climate change;
Mean response on importance scale: 3.75.
Benefits: Development of a regulatory system for greenhouse gas
emissions;
Mean response on importance scale: 3.38.
Benefits: Inducing investment in developing countries;
Mean response on importance scale: 2.73.
Benefits: Development, deployment and, more generally, creating
incentives for businesses and consumers to invest in low- or zero-
carbon technologies;
Mean response on importance scale: 2.69.
Benefits: Reducing risk of international conflict over natural
resources and territory;
Mean response on importance scale: 2.63.
[See PDF for image]
Source: GAO analysis.
Note: Total responses for each question may range from 15 to 18. See
appendix III for additional details.
[A] Avoided climate change damages includes flooding, extreme weather
events, crop damage, impacts on sensitive ecosystems, public health,
and species loss.
[End of figure]
The panelists also rated establishing a price signal to influence
market or individual behavior and facilitating international
cooperation on climate change as an important category of benefits that
could serve as a rationale for actions to address climate change. For
example, one panelist stated that the United States needs an
unavoidable price signal to fully harness the innovativeness of the
U.S. industrial and scientific communities and to provide incentives to
reduce emissions. Another panelist stated that a modest near-term
market-based policy could provide an opportunity to learn about the
effectiveness of an emissions tax or cap-and-trade program, and
stimulate research to inform the stringency of future policies.
In the first questionnaire, some panelists presented estimates of the
costs that would be associated with their proposed actions to address
climate change. Panelists' estimates of the impacts on social welfare,
including the effects on economic growth, varied depending on the type
and stringency of the policy recommended. Some panelists cited their
own research and other academic studies, as well as several assessment
reports by domestic and international governmental entities, as
credible estimates of the economic costs associated with their proposed
actions, but some noted that policy choice and stringency can have a
large impact on the cost estimates. For example, one panelist cited a
recent modeling effort by the U.S. Climate Change Science Program
(CCSP) that projected that by 2060, gross world product (GWP) would
decline by between 0 and 6.7 percent per year under emissions reduction
scenarios that achieved different levels of atmospheric stabilization
of greenhouse gases.[Footnote 28] However, another panelist stated that
welfare cost estimates from the study could be reduced by as much as 50
percent by incorporating certain policy features such as carbon offsets
into the study's policy scenario. Further, another panelist added that
it is difficult to provide a comprehensive list of potential costs
given the breadth of possible policy scenarios.
Some panelists also commented on the effect of their suggested actions
on energy prices. For example, one panelist said that a mandatory
emissions reduction program that establishes a price around $20 per ton
of carbon dioxide (2005 dollars) would increase gasoline prices by
approximately 20 cents per gallon and residential electricity prices by
approximately 1 cent per kilowatt hour above business as usual
estimates. Another expert estimated that a $20 price per ton of carbon
dioxide equivalent would result in a 10 percent increase in consumer
energy prices. Both experts cited a recent study by the Energy
Information Administration on energy market impacts of alternative
greenhouse gas reduction policies to support their estimates.
Finally, in responding to our first questionnaire, panelists were asked
to identify key assumptions that they made in describing the estimates
of the benefits and costs of their proposed actions to address climate
change. In the second questionnaire, the panelists rated the importance
of the assumptions in terms of affecting the benefits and costs
estimates generated by integrated assessment models (see app. III for
more detail). Figure 4 illustrates the opinion of panelists on the
importance of various assumptions made in developing estimates using
integrated assessment models. Assumptions that panelists identified as
the most important were the real discount rate (interest rate used for
discounting, adjusted for inflation) for assessing the benefits and
costs of climate change, and the inclusion of all economic sectors in
policies to address climate change. With respect to discounting future
benefits and costs, we asked panelists to identify a reasonable
estimate for the discount rate. Fifteen panelists responded with
estimates ranging from 0 to 5 percent.
Figure 4: Mean Panelist Ratings of the Importance of Types of
Assumptions in Integrated Assessment Models:
This figure is a horizontal bar graph showing mean panelist ratings of
the importance of types of assumptions in integrated assessment models.
The X axis is the mean response on importance scale, and the Y axis
represents the assumptions.
1: Not important at all;
2: Somewhat important;
3: Moderately important;
4: Quite important;
5: Extremely important;
Assumptions: Real discount rate for assessing benefits and costs of
addressing climate change;
Mean response on importance scale: 4.41.
Assumptions: Inclusion of all economic sectors;
Mean response on importance scale: 4.18.
Assumptions: Baseline economic growth;
Mean response on importance scale: 4.06.
Assumptions: Degree of international participation (i.e. how quickly
and to what extent will high-emitting nations implement an emissions
reduction policy);
Mean response on importance scale: 4.06.
Assumptions: Climate sensitivity (the change in global mean temperature
that results when the climate system, or a climate model, attains a new
equilibrium with the forcing change resulting from a doubling of the
atmospheric CO2 concentration);
Mean response on importance scale: 4.06.
Assumptions: Baseline energy use;
Mean response on importance scale: 4.
Assumptions: Rate of technological change;
Mean response on importance scale: 3.88.
Assumptions: Likelihood of abrupt change or extreme events;
Mean response on importance scale: 3.76.
Assumptions: Energy price projections;
Mean response on importance scale: 3.59.
Assumptions: Price elasticities;
Mean response on importance scale: 3.56.
Assumptions: Coverage across greenhouse gases;
Mean response on importance scale: 3.53.
Assumptions: Baseline population growth;
Mean response on importance scale: 3.35.
Assumptions: Baseline adaptation;
Mean response on importance scale: 3.24.
Assumptions: Efficient use of revenue by reducing distortionary taxes;
Mean response on importance scale: 3.06.
Assumptions: Ancillary public health benefits;
Mean response on importance scale: 2.76.
[See PDF for image]
Source: GAO analysis.
Note: Total responses for each question may range from 15 to 18. See
appendix III for additional details.
[A] Degree of international participation means how quickly and to what
extent high-emitting nations implement an emissions reduction policy.
[B] Climate sensitivity is the change in global mean temperature that
results when the climate system attains a new equilibrium as the result
of a doubling in the atmospheric carbon dioxide concentration.
[End of figure]
Panelists Rated Estimates of Costs of Actions to Address Climate Change
as More Useful than Estimates of Benefits, Citing Uncertainties
Associated with Future Impacts:
Citing uncertainties associated with the potential future impacts of
climate change, and the difficulties of estimating their economic
impacts, panelists rated cost estimates from integrated assessment
models as more useful for informing congressional decision making than
benefit estimates. While panelists identified challenges in estimating
costs such as predicting future technological development and
additional costs associated with inefficient policy designs, 10
panelists stated that the estimates of costs were quite or extremely
useful, whereas the majority of panelists said that estimates of
benefits were only somewhat or moderately useful. However, all of the
panelists that responded to the applicable questions on this topic said
that the estimates of costs and benefits from integrated assessment
models were at least somewhat useful. Panelists provided a number of
rationales for their opinions on integrated assessment models. For
example, one panelist said that costs were easier to estimate primarily
because economists have historical data that can be used to model the
effect of changes in energy prices. Conversely, one panelist stated
that the benefits of emissions mitigation are poorly understood because
they are based on a limited understanding about the climate system.
Another panelist added that even though researchers have put
substantial effort into quantifying the avoided damages of actions to
address climate change, they are still highly speculative.
When asked to rate the relative importance of uncertainties that may
affect the estimated benefits and costs in integrated assessment models
identified in the first questionnaire, on average, the panelists rated
thresholds and abrupt changes in the climate system as the most
important uncertainty, followed by the science of climate change, and
the economic effect of actions to address climate change (see fig. 5
and app. III for more detail).[Footnote 29] Additionally, the panelists
identified how society will adapt to climate change as an important
uncertainty affecting benefit and cost estimates. When asked how to
best address risk and uncertainty in economic assessments of climate
change policies, two panelists said it was important to provide
additional information on uncertainties associated with low-
probability, high-impact climate change events. For example, one
panelist said that the limited treatment of low-probability high-impact
uncertainty associated with high temperature changes is the biggest
unsolved problem driving a complete economic analysis. Other panelists
said it was important to provide decision makers with descriptions of
the risks of climate change, including distributions of probable impact
scenarios under various policy approaches. For example, one panelist
said that ideally, economic assessments should fully characterize
uncertainties by providing decision makers with probability
distributions over prospective outcomes.
Figure 5: Mean Panelist Ratings of the Importance of Categories of
Uncertainties Associated with Benefit and Cost Estimates from
Integrated Assessment Models:
This figure is a horizontal bar graph showing mean panelist ratings of
the importance of categories of uncertainties associated with benefit
and cost estimates from integrated assessment models. The X axis
represents the mean response on importance scale, and the Y axis
represents the uncertainties.
1: Not important at all;
2: Somewhat important;
3: Moderately important;
4: Quite important;
5: Extremely important;
Uncertainties: Thresholds and abrupt changes in climate system;
Mean response on importance scale: 4.11.
Uncertainties: Science of climate change;
Mean response on importance scale: 4.
Uncertainties: Economic effect of actions to address climate change;
Mean response on importance scale: 3.78.
Uncertainties: Discounting (in general);
Mean response on importance scale: 3.61.
Uncertainties: How people will adapt to climate change;
Mean response on importance scale: 3.56.
Uncertainties: Pure rate of time preference;
Mean response on importance scale: 3.5.
Uncertainties: Elasticity of the marginal utility of consumption;
Mean response on importance scale: 3.
[See PDF for image]
Source: GAO analysis.
Note: Total responses for each question may range from 15 to 18. See
appendix III for additional details.
[A] Pure rate of time preference reflects the relative weight assigned
to the welfare of different generations over time.
[B] Elasticity of the marginal utility of consumption is the percentage
change in welfare derived from a percentage change in consumption or
income.
[End of figure]
Despite the challenges associated with estimating benefits and costs
using integrated assessment models, several panelists cited them as
valuable tools for informing judgment on climate change policy. For
example, one panelist said that integrated assessment models are the
only tools that can assemble all of the factors surrounding the climate
issue to assess potential emissions mitigation and adaptation
strategies. When asked to identify steps that the Congress could take
to help economists and other researchers address the most important
uncertainties, most of the panelists that responded expressed the need
for continued funding of research to improve understanding of the
science and economics of climate change.
The Majority of Panelists Said That the United States Should Begin to
Control Emissions Soon, Regardless of International Participation:
The majority of panelists said that if the United States acts
unilaterally to establish a price on greenhouse gas emissions, they
would not change their conclusions that their recommended actions were
economically justified. While some panelists said that the United
States should proceed cautiously if it acts unilaterally, 16 of 18
panelists agreed that the United States should establish a price on
greenhouse gas emissions as soon as possible, regardless of the extent
to which other countries adopt similar policies. Nonetheless, the
majority of the panelists said that it was important for the United
States to participate in international negotiations to facilitate
climate agreements or to enhance the credibility or influence of the
United States. In addition, some panelists noted the importance of
participation by other countries, recommending that the United States
act conservatively in the absence of action by other high-emitting
nations. For example, one panelist said that the U.S. government should
also engage in international negotiations to ensure other nations make
a similar commitment. In emphasizing the importance of global
participation, the panelist said that without it, a U.S. emissions
reduction program would be undercut.
When asked whether U.S. action to establish a price on greenhouse gas
emissions in the absence of action by other high-emitting nations
(e.g., India, China, Brazil) would have a negative or positive effect
on the ability of U.S. companies to compete with similar companies in
other countries, 10 out of 18 panelists said the effect would be
negative, 7 said it would be neither positive or negative, and 1 did
not know or was not sure. Moreover, several panelists said that energy-
intensive industries such as chemicals and metals, as well as the coal
sector, would experience the most negative effects if the United States
established a price on greenhouse gases in the absence of such actions
in other high-emitting nations.
On the other hand, one panelist remarked that the major impacts would
not necessarily come from international trade, adding that the main
effect of U.S. action would be on electricity production, which is not
generally traded internationally. Another panelist said that
competitiveness is only one factor if the United States takes action to
mitigate greenhouse gas emissions and the other key countries do not.
The most important factor, this panelist noted, is that in the absence
of action by other high-emitters a large investment in abatement of
emissions by the United States will be wasted because it will not
achieve a corresponding improvement in the environment.
The Panelists' Views on the Strengths and Limitations of Policy Options
Focused Primarily on the Environmental Certainty of a Cap-and-Trade
System versus the Efficiency of a Tax on Emissions:
The panel provided their opinions on the strengths and limitations
associated with various policy options to address climate change, and
focused on the key trade-offs between a tax on emissions or a cap-and-
trade system. Panelists first identified criteria for evaluating policy
options and then discussed the strengths and limitations of different
policy options within this context. The most important trade-offs
identified by panelists focused on the environmental effectiveness of a
cap-and-trade system versus the economic efficiency of a tax on
emissions. While panelists viewed other policy options less favorably,
they cited their potential as a complement to a market-based mechanism.
These expert opinions should be of assistance to the Congress in
weighing the potential benefits and costs of different policies for
addressing climate change.
Panelists Rated the Importance of Criteria for Evaluating Policy
Options:
In our first questionnaire, panelists identified criteria that they
believe the Congress should consider in evaluating the various actions
and policy options for addressing climate change. In the second
questionnaire, panelists rated the importance of those criteria, such
as economic efficiency and environmental effectiveness. Economic
efficiency is used to assess whether a policy alternative would
maximize net benefits (that is, where marginal benefits equal marginal
costs) to society, and environmental effectiveness means that the
policy implemented has the desired environmental result. The criteria
were divided into two categories: efficiency-related criteria, such as
economic efficiency, environmental effectiveness, cost effectiveness,
flexibility and adaptability of policies; and equity-related criteria,
such as political feasibility, impact on international negotiations,
and the distribution of costs and benefits among generations and
countries. On average, the panelists rated cost effectiveness and
political feasibility as the most important criteria (see fig. 6 and
app. III for more detail).
Figure 6: Mean Panelist Ratings of the Importance of Criteria in
Evaluating Policies for Addressing Climate Change:
This figure is a horizontal bar graph showing mean panelist ratings of
the importance of criteria in evaluating policies for addressing
climate change. The X axis represents mean response on importance
scale, and the Y axis represents criteria.
1: Not important at all;
2: Somewhat important;
3: Moderately important;
4: Quite important;
5: Extremely important;
Criteria: "Cost-effectiveness (achieve emissions reductions in least
cost way)";
Mean response on importance scale: 4.72.
Criteria: "Political feasibility";
Mean response on importance scale: 4.29.
Criteria: "Flexibility to allow decision makers to adapt the
actions/policies based on new information";
Mean response on importance scale: 4.17.
Criteria: "Economic efficiency (benefits of actions outweigh costs,
compared to status quo)";
Mean response on importance scale: 3.94.
Criteria: "Environmental effectiveness (effective at reducing
environmental harm)";
Mean response on importance scale: 3.94.
Criteria: "Predictability/regulatory certainty information";
Mean response on importance scale: 3.94.
Criteria: "Positive effect on international negotiations or actions by
other countries";
Mean response on importance scale: 3.89.
Criteria: "Effect on technology development or deployment";
Mean response on importance scale: 3.88.
Criteria: "Transparency (requirements and costs are visible to all
parties)"
Mean response on importance scale: 3.83.
Criteria: "Administrative ease/simplicity";
Mean response on importance scale: 3.67.
Criteria: "Implementation costs associated with the action or policy";
Mean response on importance scale: 3.53.
Criteria: "Risk and uncertainty associated with thresholds or abrupt
changes";
Mean response on importance scale: 3.5.
Criteria: "Minimize rent seeking";
Mean response on importance scale: 3.33.
Criteria: "Independence from political influence";
Mean response on importance scale: 3.22.
Criteria: "Minimize emissions leakage";
Mean response on importance scale: 3.18.
Criteria: "Distribution of benefits and costs across income groups in
the U.S.";
Mean response on importance scale: 3.17.
Criteria: "Distribution of benefits and costs across countries";
Mean response on importance scale: 3.11.
Criteria: "Distribution of benefits and costs across U.S. economic
sectors";
Mean response on importance scale: 3.
Criteria: "Distribution of benefits and costs across generations";
Mean response on importance scale: 2.89.
Criteria: "Distribution of benefits and costs across income groups in
different countries";
Mean response on importance scale: 2.71.
Criteria: "Distribution of benefits and costs across income groups in
different generations";
Mean response on importance scale: 2.61.
[See PDF for image]
Source: GAO analysis.
Note: Total responses for each question may range from 15 to 18. See
appendix III for additional details.
[A] Cost-effectiveness is the extent to which a goal is achieved in a
least cost manner.
[B] Economic efficiency occurs when, from a societal perspective,
production is at an efficient level (e.g. net benefits are maximized).
[C] Environmental effectiveness is the extent to which policy achieves
the environmental target.
[D] Transparency is the extent to which policy's requirements and costs
are visible to all parties.
[End of figure]
The Most Important Trade-offs are between the Relative Effectiveness of
Cap-and-Trade Systems and the Relative Efficiency of Taxes:
When asked to identify their preferred policy options, 8 of the 18
panelists said that they prefer a cap and trade with a safety valve as
a way to combine some elements of both a cap-and-trade system and a
tax. Some panelists noted that a traditional cap-and-trade system would
provide more environmental certainty; that is, it would more likely
achieve specific emissions reductions because the policy caps the total
amount of emissions at a specific level. On the other hand, several
panelists said a tax on emissions would be more economically efficient,
citing, for example, its ability to provide certainty about marginal
abatement costs associated with controlling greenhouse gases and
avoiding price volatility that could occur in a permit market. In
addition, some noted that a cap-and-trade program can be more
administratively burdensome than a tax. Nonetheless, some of the
panelists that preferred a tax said that a cap-and-trade program,
especially if it included cost minimizing components, would be an
acceptable second option to address climate change.
The majority of panelists supporting a safety valve cited the potential
for limiting volatility as an important rationale for incorporating a
safety valve into a cap-and-trade program. In addition, some panelists
cited uncertainty regarding the marginal costs and marginal benefits of
complying with a cap-and-trade program, and some cited the flexibility
that it would provide to decision makers to respond to new information
as rationales for having a safety valve. However, 3 panelists expressed
concern regarding the compatibility of a safety valve with an
international greenhouse gas trading system. For example, one panelist
stated that under any realistic safety valve system, the permits should
be good only in the country of issue. Otherwise, countries with higher
market emissions prices could buy permits in the United States,
undermining their respective emissions targets. Another panelist added
that if the United States commits to specific emissions targets as part
of an international agreement, a safety valve may affect the United
States' ability to meet those commitments. If the safety valve is
triggered, for example, emitters will be allowed to purchase additional
permits to emit above the targeted cap for emissions, which may keep
the United States from meeting agreed-to goals. Potential solutions
offered by panelists included abolishing the safety valve after the
emissions market has stabilized and then integrating into an
international system, and incorporating a quantitatively limited safety
valve where a limited number of permits were sold once the safety valve
was reached.
A majority of the panelists said that the government should auction off
rather than give away at least a portion of the permits under a cap-
and-trade system. The means by which the government distributes
allowances can have important economic implications. For example, the
existing cap-and-trade programs for sulfur dioxide (a pollutant that
causes acid rain) and for carbon dioxide in the European Union give
away most of the allowances to regulated entities with a limited number
of allowances reserved for auction. The majority of panelists believed
that the government should use either a combination of auctioning and
free allocations or auctioning to distribute the allowances. In
addition, we asked the panelists to rate the importance of various
actions to distribute the revenue generated from auctioning allowances
that could offset adverse effects on consumers or particular sectors of
the economy. On average, the panelists rated using the revenues to
reduce the tax burden for low-income individuals as the most important
way to distribute the revenue (see fig. 7 and app. III for more
detail). In addition, on average, panelists rated using revenues to
support research and development in various areas, such as zero-or low-
carbon technologies and carbon capture and storage as at least
moderately important.
Figure 7: Mean Panelist Ratings of the Importance of Ways That Revenue
Generated from a Market-Based Mechanism Could Be Distributed:
This figure is a horizontal bar graph representing mean panelist
ratings of the importance of ways that revenue generated from a market-
based mechanism could be distributed. The X axis represents the mean
response on importance scale, and the Y axis represents policy options.
1: Not important at all;
2: Somewhat important;
3: Moderately important;
4: Quite important;
5: Extremely important;
Policy operations: Reducing tax burden for low income individuals;
Mean response on importance scale: 3.33.
Policy operations: Reducing distortionary taxes on capital;
Mean response on importance scale: 3.25.
Policy operations: Reducing distortionary taxes on labor;
Mean response on importance scale: 3.24.
Policy operations: Reducing distortionary taxes on income;
Mean response on importance scale: 3.11.
Policy operations: Supporting R&D for carbon capture and storage;
Mean response on importance scale: 3.11.
Policy operations: Supporting R&D to stimulate the development and
dissemination of zero or low-carbon/greenhouse gas technologies;
Mean response on importance scale: 3.
Policy operations: Supporting R&D for broad based sources for
alternative fuels;
Mean response on importance scale: 2.94.
Policy operations: Supporting R&D for informing adaptation efforts;
Mean response on importance scale: 2.89.
Policy operations: Supporting R&D for improving scientific
understanding of climate change;
Mean response on importance scale: 2.83.
Policy operations: Supporting R&D for geo-engineering;
Mean response on importance scale: 2.75.
Policy operations: Supporting development of greenhouse gas emission
reduction efforts and climate adaptation policies in poorest countries;
Mean response on importance scale: 2.5.
Policy operations: Shoring up projected shortfalls in entitlements such
as Social Security and Medicare;
Mean response on importance scale: 2.29.
[See PDF for image]
Source: GAO analysis.
Note: Total responses for each question may range from 15 to 18. See
appendix III for additional details.
[End of figure]
The Panelists Viewed Other Policy Options Less Favorably but Cited
Their Potential as a Complement to a Market-Based Mechanism:
In the second questionnaire, we asked panelists to discuss the
strengths and weaknesses of other domestic policy options that would
serve to complement a tax or cap-and-trade system, but some viewed them
less favorably in the absence of a market-based mechanism. In weighing
the strengths and weaknesses of policy options, we asked panelists to
discuss research and development of technologies, adaptation to climate
change, revising efficiency standards, and reforming subsidies. For
example, several panelists noted that mechanisms such as vehicle fuel
efficiency standards would be unnecessary if the Congress enacted a
mitigation policy to place a price on carbon. Two panelists noted that
setting efficiency standards for vehicles was unlikely to yield cost-
effective reductions in emissions because greater fuel efficiency
lowers the cost of driving, potentially leading individuals to drive
more. Table 3 reflects examples cited by the panelists of strengths and
limitations of specific policy options.
Table 3: Key Strengths and Limitations of Other Policy Options
Identified by Panelists:
Policy option: R&D in low-or zero-carbon technologies;
Examples of strengths: * May help lower long-term costs of mitigation;
* Promotes the development of new technologies and encourages
innovation;
* Facilitates international technology transfer;
* Government-funded R&D can be disseminated quickly;
* Privately funded R&D may be slow to develop;
Examples of limitations: * Insufficient as a policy on its own;
* Unnecessary in the presence of a robust mitigation policy;
* Uncertainty regarding feasibility, costs, and timing of deployment;
* Danger of funding less useful technologies due to politics or
uncertainty;
* Could crowd out other sources of R&D funding.
Policy option: Adaptation;
Examples of strengths: * Essential to help federal, state, and local
governments plan and prepare for unavoidable consequences;
* Clear role for the federal government in some sectors, such as water
resources and land management;
Examples of limitations: * Insufficient policy on its own;
* Difficult to define;
* Private sector has incentives to adapt without federal intervention;
* Federal government has little role;
* Will yield only moderate payoffs in terms of reducing future costs;
* Removes incentive to reduce emissions or develop better energy
technologies.
Policy option: Reforming subsidies for fuels or energy-efficient
technologies;
Examples of strengths: * Necessary to make current policies more
efficient;
* Facilitates the development of better fuels and energy-efficient
technologies;
* May result in better pricing of resources;
Examples of limitations: * Insufficient policy on its own;
* Unnecessary in the presence of a robust mitigation policy;
* Inferior to mitigation for addressing climate change;
* Potential for rent seeking[A];
* Economically inefficient;
* Politically difficult.
Policy option: Develop or revise efficiency standards;
Examples of strengths: * Could reduce the overall costs of mitigation;
* Important in the presence of real market failures, such as buildings
and consumer appliances;
* Politically feasible;
Examples of limitations: * Insufficient policy on its own;
* Unnecessary in the presence of a robust mitigation policy;
* Economically inefficient;
* Unequal burden of costs;
* Limited potential benefits.
Policy option: R&D on the basic science of climate change;
Examples of strengths: * Informs adaptation needs;
* Guides stringency of climate policy goals;
* Reduces uncertainty regarding future impacts, costs, and benefits of
climate change;
* Enhances monitoring;
Examples of limitations: * Insufficient policy on its own;
* Unnecessary in the presence of a robust mitigation policy;
* Sufficient knowledge on the subject;
* Adequately funded at current levels;
* Could postpone action on mitigation;
* Difficult to determine the proper amount of R&D needed.
Source: GAO analysis of panelists' responses:
[A] Rent seeking occurs when a party (e.g., individual or organization)
seeks an economic gain (e.g., subsidy) from the government.
[End of table]
The panelists cited the strengths and weaknesses of public investments
in the development and deployment of technologies that could reduce
emissions. Some suggested such efforts could complement a market-based
mitigation policy by, for example, lowering the costs of controlling
emissions and enhancing the likelihood of achieving long-term emissions
targets, while others noted that public investment may be unnecessary
with a mitigation policy in place. In addition, some panelists said
that while they supported research and development investment, it was
not enough on its own without additional policies to address climate
change. Further, several panelists also expressed concern about the
government picking what it perceives as "winning" technologies rather
than funding a broader research and development program.
A majority of panelists said that funding efforts to adapt to the
impacts of climate change were at least moderately important. Some
panelists identified actions the federal government could take to
prepare for climate change impacts such as reforming insurance subsidy
programs in areas vulnerable to natural disasters like hurricanes or
flooding and creating capacity within federal agencies to protect
against and react to climate change impacts. When discussing the
strengths and weaknesses of actions to adapt to climate change, several
panelists noted that implementing adaptation policies may help reduce
vulnerabilities when faced with inevitable climate change or in the
event of possible catastrophic climate change. One panelist referred to
adaptation as a risk management strategy, or form of insurance, against
uncertain future events resulting from climate change. Some panelists
noted that a clear federal role exists for certain sectors, such as
water resource management and property rights protection, which could
require additional resources for infrastructure development, research,
and adapting practices to use alternative methods for distributing
water and managing federal lands. Another panelist said that
implementing adaptation policies could also help ensure greater
international and economic equity, since some areas likely to be
affected by climate change are underdeveloped, economically
disadvantaged, or vulnerable in some way to impacts. However, some
panelists stated that adaptation was difficult to define, making the
federal role unclear, and others said that incentives for adaptation
may already exist, limiting the need for a federally directed
adaptation policy.
Panelists identified the strengths and limitations of other policy
options to address climate change, such as subsidy reform for
alternative fuels or energy-efficient technologies and research and
development into the basic science of climate change. For example, in
rating the importance of additional actions for the Congress to
consider, 12 panelists rated reforming subsidies for alternative fuels
or energy-efficient technologies as at least moderately important, and
several panelists noted that subsidies for alternative fuels or energy-
efficient technologies are economically inefficient or insufficient on
their own without an appropriate mitigation policy. Regarding research
and development on the basic science of climate change, several
panelists said that it could help inform adaptation efforts and reduce
uncertainty of costs or benefits by improving understanding of the
potential dangers from climate change.[Footnote 30] However, some
panelists noted that additional funding of research and development on
the basic science of climate change is not warranted, citing reasons
such as a belief that it is adequately funded at current levels, it
could be used as an excuse to delay taking action to mitigate climate
change, and that the priority should instead be placed on adaptation
efforts and monitoring.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies to House
Committees on Energy and Commerce; Natural Resources; Science and
Technology; Transportation and Infrastructure; and the Select Committee
on Energy Independence and Global Warming. We will also provide the
report to the Senate Committees on Environment and Public Works; Energy
and Natural Resources; Commerce, Science and Transportation; and the
Joint Economic Committee. Copies will be made available to others on
request, and the report will be available at no charge on the GAO Web
site at [hyperlink, http://www.gao.gov].
If you or your staff have any questions regarding this report, please
contact me at (202) 512-3841 or stephensonj@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. Key contributors are listed in
appendix VI.
Signed by:
John B. Stephenson:
Director, Natural Resources and Environment:
[End of section]
Appendix I: Scope and Methodology:
To address the first and second objectives, we (1) reviewed relevant
climate change academic literature and documents developed by federal
agencies, (2) met with agency officials from the Environmental
Protection Agency (EPA), the Department of Energy (DOE) including the
Energy Information Administration (EIA), the Department of Commerce
including the National Oceanic and Atmospheric Administration (NOAA),
the United States Department of Agriculture (USDA), the National
Aeronautic and Space Administration (NASA), and the Council of Economic
Advisors (CEA), and (3) obtained expert opinion on the economic effects
of actions to address climate change and the strengths and weaknesses
of those actions using a virtual panel on the Internet.
To structure and gather expert opinions from the panel, we employed a
modified version of the Delphi method. The method is based on a
structured process for collecting and distilling knowledge from a group
of experts by means of a series of questionnaires.[Footnote 31] Used to
support informed decision making, the Delphi method was first developed
at the RAND Corporation in the 1950s. One of the strengths of this
approach is its flexibility, and while first used in a live group
discussion format, the method is easily modified for various settings.
The modified process we employed utilized two Web-based questionnaires,
and incorporated an iterative and controlled feedback process to gather
the experts' opinions. Specifically, experts' responses to the first
questionnaire were used to create the questions for the second,
allowing the experts to consider the opinions and issues raised by
other panelists when responding to the second round of questions. Also,
by using a Web-based process, we were able to overcome some of the
potential biases associated with group discussions. These biasing
effects include the potential dominance of individuals and group
pressure for conformity. Moreover, by creating a virtual panel, we were
able to include more experts than would have been possible with a live
panel. While the method has these strengths, there are some potential
limitations. For example, there is considerable reliance on the active
participation of the panelists, which can vary widely, and some
panelists may not complete the entire study. In addition, the results
of the iterative process are limited to the issues, topics, and
responses generated by those participating; thus some topics or
viewpoints may not be considered in the process. To mitigate the latter
limitation, we added critical questions to the second questionnaire
that were not discussed in the first round based on our review of the
literature.
We contracted with the National Academy of Sciences (NAS) to select and
recruit a panel of experts with a range of in-depth experience
assessing the economic impacts of climate change policy. Participants
were to (1) have expertise in modeling and analyzing benefits, costs,
and uncertainties using integrated assessment methods; (2) have
knowledge of policies for mitigating climate change; (3) have knowledge
of the economic trade-offs associated with different policies for
mitigating climate change; and (4) be affiliated with U.S.-based
institutions including academia, the federal government, and other
research-oriented entities. To select the experts, we provided NAS with
a preliminary list of potential panelists that we identified in our
review of the literature. Taking these names into account, NAS
developed a list of 37 who met our criteria. We reviewed and agreed
with the list of names, and NAS sent 25 individuals an electronic
letter via e-mail inviting them to participate in the study along with
a description of the project. Invitees were given the option of
discussing the project further with a project representative before
deciding whether or not to participate, which some chose to do. Of the
25 panelists NAS recruited to participate, 21 agreed and were sent the
first questionnaire. Nineteen responded to the first questionnaire, and
18 responded to the second.[Footnote 32] All of the experts who
participated completed a form stating that they had no conflicts of
interest that would compromise their ability to participate in the
panel.
Prior to the posting of the questionnaires, we conducted a series of
pretests with internal and external experts, including two panel
participants. The goals of the pretests were to check that (1) the
questions were clear and unambiguous and (2) terminology was used
correctly. We made changes to the content and format of both
questionnaires as necessary during the pretesting processes. We also
conducted usability tests of both questionnaires for the Internet to
ensure operability. For each phase of the Delphi, we posted a
questionnaire on the Internet. Panel members were notified of the
availability of the questionnaire with an e-mail message. The e-mail
message contained a unique user name and password that allowed each
respondent to log on and fill out a questionnaire but did not allow
respondents access to the questionnaires of others.
In the first phase, we asked panelists to provide responses to three
open-ended questions on the economics of actions to address climate
change developed from an extensive literature review. We asked the
panelists to (1) identify what actions, if any, the Congress should
consider to address climate change; (2) provide estimates of the
benefits and costs of their recommended actions; and (3) identify
criteria that are appropriate for evaluating the potential actions. In
addition, we asked the panelists to provide citations to support their
responses.
After the first questionnaire was completed, we performed a content
analysis of the open-ended responses. Using the themes and topics that
were discussed, as well as the varying opinions of the panel, the
second questionnaire was constructed. For example, panelists were asked
to rate the importance of the various assumptions and uncertainties
associated with integrated assessment models that the experts
collectively identified in the first questionnaire. Using this
approach, panelists could provide their opinions on the topics that
others had raised, and areas of agreement and disagreement could be
identified. In addition, this approach allowed for the panelists to
reevaluate their original responses in light of the responses of the
whole group. While these first round responses were the primary source
for developing the second questionnaire, literature cited in support of
their responses, as well as information gathered from GAO's literature
review were also incorporated as necessary. The second phase
questionnaire included mostly closed-ended questions, with a limited
number of open-ended questions, and encapsulated panelists' views on
preferred policy options, potential benefits and costs, key
uncertainties, and the strengths and weaknesses of different policy
options.
Panel members had approximately 4 weeks between July and August of 2007
to complete their questionnaires in the first phase of the panel,
approximately 4 weeks in October and November of 2007 to complete their
questionnaires in the second phase of the panel, and approximately 4
weeks to provide comment (at their discretion) on a summary of their
second round responses in January of 2008. Selected questions and
aggregated responses from the second phase are presented in appendix
III. In addition, we asked several follow-up questions requesting that
panelists clarify their responses or elaborate on critical policy
issues. While we display only the quantitative, closed-ended responses,
we also relied on the responses to the qualitative, open-ended
questions to inform our findings in this report. GAO provided a summary
of the findings of this report and briefed representatives from the
CEA, the Council on Environmental Quality (CEQ), EPA, and DOE on the
results of the panel prior to issuing this report. The views expressed
by the panel members do not necessarily represent the views of GAO.
[End of section]
Appendix II: Selected Characteristics of Panelists' Preferred Policy
Options for Addressing Climate Change:
Listed below are selected panelist policy recommendations for
implementing a market-based mechanism to place a price on greenhouse
gas emissions.
Table 4: Selected Characteristics of Panelists' Preferred Policy
Options for Addressing Climate Change:
Panelist: Panelist 1;
Preferred market-based policy: Cap and trade;
Greenhouse gases covered: All gases;
Date of implementation: 2010-2015;
Scope: Economywide;
Point of regulation[A]: Combination;
Initial price range[B]: > 14;
Safety valve price[C]: N/A;
Complementary policy actions: (1) R&D on low carbon energy
technologies; (2) energy efficiency and renewable portfolio standards.
Panelist: Panelist 2;
Preferred market-based policy: Cap and trade;
Greenhouse gases covered: All gases;
Date of implementation: 2010-2015;
Scope: Economywide;
Point of regulation[A]: Upstream;
Initial price range[B]: 0.3-3;
Safety valve price[C]: N/A;
Complementary policy actions: Not specified.
Panelist: Panelist 3;
Preferred market-based policy: Cap and trade;
Greenhouse gases covered: All gases;
Date of implementation: 2010-2015;
Scope: Economywide;
Point of regulation[A]: Combination;
Initial price range[B]: 21-30;
Safety valve price[C]: N/A;
Complementary policy actions: (1) R&D subsidies;
(2) adaptation.
Panelist: Panelist 4;
Preferred market-based policy: Cap and trade w/ safety valve;
Greenhouse gases covered: Carbon dioxide;
Date of implementation: 2010-2015;
Scope: Economywide;
Point of regulation[A]: Upstream;
Initial price range[B]: 21-30;
Safety valve price[C]: Don't know;
Complementary policy actions: Not specified.
Panelist: Panelist 5;
Preferred market-based policy: Cap and trade w/ safety valve;
Greenhouse gases covered: All gases;
Date of implementation: Before 2010;
Scope: Economywide;
Point of regulation[A]: Upstream;
Initial price range[B]: 0.3-3;
Safety valve price[C]: 0.55;
Complementary policy actions: (1) International negotiation and
assistance.
Panelist: Panelist 6;
Preferred market-based policy: Cap and trade w/ safety valve;
Greenhouse gases covered: All gases;
Date of implementation: 2010-2015;
Scope: Economywide;
Point of regulation[A]: Downstream;
Initial price range[B]: 3-5;
Safety valve price[C]: 3.81;
Complementary policy actions: (1) Do away with import tariffs and
agricultural subsidies;
(2) tax breaks for private sector research and development;
(3) remove perverse subsidies;
(4) declassify energy saving and lightweight technologies for export to
China and India.
Panelist: Panelist 7;
Preferred market-based policy: Cap and trade w/ safety valve;
Greenhouse gases covered: Carbon dioxide;
Date of implementation: Before 2010;
Scope: Economywide;
Point of regulation[A]: Combination;
Initial price range[B]: 3-5;
Safety valve price[C]: 5;
Complementary policy actions: (1) Funding R&D;
(2) funding adaptation;
(3) reform policies that discourage energy efficiency.
Panelist: Panelist 8;
Preferred market-based policy: Cap and trade w/ safety valve;
Greenhouse gases covered: All gases;
Date of implementation: 2010-2015;
Scope: Economywide;
Point of regulation[A]: Upstream;
Initial price range[B]: 11-20;
Safety valve price[C]: 3 to 4 times the initial price of emissions;
Complementary policy actions: (1) Negotiate international agreements
with major greenhouse gas emitters;
(2) invest in pilot demonstration projects for carbon capture and
storage and renewable fuels.
Panelist: Panelist 9;
Preferred market-based policy: Cap and trade w/ safety valve;
Greenhouse gases covered: All gases;
Date of implementation: 2010-2015;
Scope: Economywide;
Point of regulation[A]: Upstream;
Initial price range[B]: 11-20;
Safety valve price[C]: 12 to 20;
Complementary policy actions: (1) Support for technology research,
development, and deployment;
(2) support for developing countries;
(3) international engagement to leverage our action for action by other
countries.
Panelist: Panelist 10;
Preferred market-based policy: Cap and trade w/ safety valve;
Greenhouse gases covered: All gases;
Date of implementation: Before 2010;
Scope: Economywide including land use;
Point of regulation[A]: Combination;
Initial price range[B]: 1-10;
Safety valve price[C]: 2.70;
Complementary policy actions: (1) Limit loopholes that could arise in
policies that focus on specific sectors or groups of economic actors.
Panelist: Panelist 11;
Preferred market-based policy: Cap and trade w/ safety valve;
Greenhouse gases covered: All gases;
Date of implementation: Before 2010;
Scope: Economywide;
Point of regulation[A]: Downstream;
Initial price range[B]: 11-20;
Safety valve price[C]: 25;
Complementary policy actions: (1) Research and development;
(2) technology transfer (both emphasizing adaptation and emissions
reduction strategies).
Panelist: Panelist 12;
Preferred market-based policy: Tax;
Greenhouse gases covered: Carbon dioxide;
Date of implementation: Before 2010;
Scope: Economywide;
Point of regulation[A]: Upstream;
Initial price range[B]: 11-20;
Safety valve price[C]: N/A;
Complementary policy actions: (1) Support carbon capture and storage;
(2) sponsor research and development in alternative energy sources; (3)
sponsor adaptation at home and abroad.
Panelist: Panelist 13;
Preferred market-based policy: Tax;
Greenhouse gases covered: All gases;
Date of implementation: Before 2010;
Scope: Economywide;
Point of regulation[A]: Downstream;
Initial price range[B]: 0.3-3;
Safety valve price[C]: N/A;
Complementary policy actions: Not specified.
Panelist: Panelist 14;
Preferred market-based policy: Tax;
Greenhouse gases covered: All gases;
Date of implementation: Before 2010;
Scope: Economywide;
Point of regulation[A]: Combination;
Initial price range[B]: 6-8;
Safety valve price[C]: N/A;
Complementary policy actions: (1) Basic research in the underlying
science for low-carbon energy systems.
Panelist: Panelist 15;
Preferred market-based policy: Tax;
Greenhouse gases covered: Carbon dioxide first, then expand to all;
Date of implementation: 2010-2015;
Scope: Economywide;
Point of regulation[A]: Upstream;
Initial price range[B]: 11-20;
Safety valve price[C]: N/A;
Complementary policy actions: (1) Adaptation;
(2) R&D (including geo- engineering).
Panelist: Panelist 16;
Preferred market-based policy: Tax;
Greenhouse gases covered: All gases;
Date of implementation: 2010-2015;
Scope: Economywide incorporating carbon sinks from land use;
Point of regulation[A]: Mostly upstream, midstream for utilities and
carbon capture and storage;
Initial price range[B]: 11-20;
Safety valve price[C]: N/A;
Complementary policy actions: (1) Independently directed effort to
support R&D;
(2) international assistance and negotiations to facilitate action by
other nations.
Panelist: Panelist 17;
Preferred market-based policy: Tax;
Greenhouse gases covered: No answer;
Date of implementation: Before 2010;
Scope: Economywide;
Point of regulation[A]: Downstream;
Initial price range[B]: 41-50;
Safety valve price[C]: N/A;
Complementary policy actions: Not specified.
Panelist: Panelist 18;
Preferred market-based policy: Tax;
Greenhouse gases covered: All gases;
Date of implementation: Before 2010;
Scope: Economywide;
Point of regulation[A]: Upstream;
Initial price range[B]: N/A[D];
Safety valve price[C]: N/A;
Complementary policy actions: Not specified.
Source: GAO.
Note: N/A stands for not applicable.
[A] Point of regulation in the economy. Combination means the policy
would have both upstream and downstream provisions.
[B] Initial price range per metric ton of carbon dioxide equivalent in
2007 dollars.
[C] Safety valve price per metric ton of carbon dioxide equivalent in
2007 dollars.
[D] One panelist preferred a policy that set a price for each
individual greenhouse gas as opposed to one price for all emissions.
[End of table]
[End of section]
Appendix III: Selected Questions and Expert Responses:
Listed below are questions and summary panelist responses supporting
figures 2 through 7 of this report. Panelists were asked to rate the
importance of various items related to policy approaches and rationales
for addressing climate change (Mean responses were calculated by
assigning the following values to the rated level of importance: 1 =
not at all, 2 = somewhat, 3 = moderately, 4 = quite, and 5 =
extremely).
Question 1: In addition to establishing a price on anthropogenic
sources of emissions using either a tax or cap and trade system (or
other regulatory approach), panelists identified the following list of
actions that Congress might also consider as part of a broader
portfolio of actions. How important is it that Congress consider each
action to address climate change?
[See PDF for image]
Source: GAO.
[End of table]
Question 2: In the first round of questions, panelists identified
criteria that the Congress should consider in evaluating the various
actions and policy options for addressing climate change. The list
below summarizes these criteria. How important would you say that the
following criteria are in evaluating the various policies for
addressing climate change?.
[See PDF for image]
Source: GAO.
[End of table]
Question 3: Panelists identified several actions that Congress should
consider in deciding how to distribute the revenue that would be
generated from a federal program to establish a price on greenhouse
gases (from an imposition of a tax or from an auction of permits). How
important is it for Congress to distribute the generated revenue to
each of these categories?.
[See PDF for image]
Source: GAO.
[End of table]
Question 4: Many panelists said that it is difficult to estimate the
potential benefits associated with emissions mitigation partly because
of uncertainty about the impact of climate change and the actions that
could be used to address it. In some cases, the panelists identified
general categories of benefits that could accrue from various policy
options. These categories are below. How important are the following
categories of potential benefits as a rationale for addressing climate
change?.
[See PDF for image]
Source: GAO.
[End of table]
Question 5: Panelists identified several key assumptions that they made
in estimating the benefits and costs using integrated assessment
models. How important are the following assumptions in terms of
affecting the estimated benefits and costs in integrated assessment
models?.
[See PDF for image]
Source: GAO.
[End of table]
Question 6: Numerous respondents identified the importance of
considering risk and uncertainty in identifying policy options for the
Congress to consider. Below is a list of the key uncertainties that
panelists identified. In general, how important are each of these
uncertainties in terms of affecting the estimated benefits and costs in
integrated assessment models?.
[See PDF for image]
Source: GAO.
[End of table]
[End of section]
Appendix IV: Panel of Experts:
[End of section]
Joseph Aldy, Resources for the Future:
James Edmonds, Pacific Northwest National Laboratory:
Richard Howarth, Dartmouth College:
Bruce McCarl, Texas A&M University:
Robert Mendelsohn, Yale University:
William Nordhaus, Yale University:
Sergey Paltsev, Massachusetts Institute of Technology:
William Pizer, Resources for the Future:
David Popp, Syracuse University:
John Reilly, Massachusetts Institute of Technology:
Roger Sedjo, Resources for the Future:
Kathleen Segerson, University of Connecticut:
Brent Sohngen, Ohio State University:
Robert Stavins, Harvard University:
Richard Tol, Economic and Social Research Institute:
Martin Weitzman, Harvard University:
Peter Wilcoxen, Syracuse University:
Gary Yohe, Wesleyan University:
[End of section]
Appendix V: Bibliography of Selected Literature Reviewed by GAO:
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[End of section]
Appendix VI: GAO Contact and Staff Acknowledgments:
GAO Contact:
John Stephenson, (202) 512-3841, or stephensonj@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Quindi Franco, Cindy
Gilbert, Michael Hix, Tim Guinane, Micah McMillan, and Kate Robertson
made key contributions to this report. JoAnne Berry, Nancy Crothers,
Christine Fishkin, Brandon Haller, Tom McCool, Susan Offutt, Benjamin
Shouse, Kim Raheb, and Ardith Spence also made important contributions
to this report.
[End of section]
Footnotes:
[1] Major greenhouse gases include carbon dioxide (CO2), methane (CH4),
nitrous oxide (N2O), and synthetic gases (hydrofluorocarbons {HFCs},
perfluorocarbons {PFCs}, and sulfur hexafluoride {SF6}).
[2] See GAO,Climate Change: Financial Risks to Federal and Private
Insurers in Coming Decades Are Potentially Significant, GAO-07-285,
Mar. 16, 2007; and Climate Change: Agencies Should Develop Guidance for
Addressing the Effects on Federal Land and Water Resources, GAO-07-863,
(Washington, D.C.: Aug. 7, 2007).
[3] Atmospheric concentrations of carbon dioxide increased from 280
parts per million to 379 parts per million between pre-industrial times
and 2005. (See Intergovernmental Panel on Climate Change (IPCC), 2007:
The Physical Science Basis. Contribution of Working Group I to the
Fourth Assessment)
[4] Environmental Protection Agency (EPA), 2008, Inventory of U.S.
Greenhouse Gas Emissions and Sinks, 1990-2006, Public Review Draft
(Washington, D.C.: Apr. 18, 2008).
[5] Energy Information Administration (EIA), International Energy
Annual 2005.
[6] In the context of the United Nation's Framework Convention on
Climate Change, mitigation is a human intervention to reduce the
sources or enhance the sinks of greenhouse gases. Examples include
using fossil fuels more efficiently for industrial processes or
electricity generation, switching to solar energy or wind power,
improving the insulation of buildings, and expanding forests and other
sinks to remove greater amounts of carbon dioxide from the atmosphere.
Forests and other vegetation are considered sinks because they remove
carbon dioxide through photosynthesis.
[7] In general, auctioning the allowances would enable the government
to decide how to use the revenue, and allocating the allowances for
free would represent a transfer of wealth from the government to the
entities receiving the allowances.
[8] In general, a firm will purchase permits when the permit price is
lower than the cost to abate emissions.
[9] Establishing a price on emissions creates a price signal to fossil
fuel users to cut back on consumption.
[10] National Oceanic and Atmospheric Administration (NOAA), "Coastal
Area and Marine Resources: The Potential Consequences of Climate
Variability and Change," December 2001.
[11] The appropriate price, often called the social cost of carbon,
reflects the present value of economic damages caused by an additional
quantity of greenhouse gas emissions. Under an economically optimal
control policy, the price would be set at the point where the
incremental or marginal damages from global warming equal the marginal
costs of controlling emissions.
[12] International Panel on Climate Change, Working Group II (2007). A
metric ton is equivalent to 1,000 kilograms, or approximately 2,204
pounds.
[13] One panelist preferred a policy that set a price for each
individual greenhouse gas as opposed to one price for all emissions.
[14] Because greenhouse gases differ in their potential to contribute
to global warming, each gas is assigned a unique weight, called a
global warming potential, based on its heat-absorbing ability relative
to carbon dioxide over a fixed period. This provides a way to convert
emissions of various greenhouse gases into a common measure, called
carbon dioxide equivalent.
[15] IPCC, 2007: Introduction. In: Climate Change 2007: Mitigation,
Contribution of Working Group III to the Fourth Assessment Report of
the Intergovernmental Panel on Climate Change (B. Metz, O.R. Davidson,
P.R. Bosch, R. Dave, L.A. Meyer [eds.]), Cambridge University Press,
Cambridge, United Kingdom.
[16] IPCC, 2007: Introduction. In: Climate Change 2007: Mitigation,
Contribution of Working Group III to the Fourth Assessment Report of
the Intergovernmental Panel on Climate Change (B. Metz, O.R. Davidson,
P.R. Bosch, R. Dave, L.A. Meyer [eds.]), Cambridge University Press,
Cambridge, United Kingdom.
[17] The IPCC defines mitigation as technological change and
substitution that reduce resource inputs, such as energy use, and
emissions per unit of output. Although several social, economic, and
technological policies would produce an emissions reduction, with
respect to climate change, mitigation means implementing policies to
reduce greenhouse gas emissions and enhance greenhouse gas sinks.
[18] UNFCCC, Bali Action Plan, December 2007.
[19] National Research Council: Abrupt Climate Change: Inevitable
Surprises (Washington, D.C.: 2002).
[20] In general, benefits and costs are measured in terms of a common
metric: dollars. Benefits are monetized by estimating the amount that
individuals would be willing to pay for the benefit (or the amount they
would be willing to accept to forgo the benefit) based on market
transactions. In cases where the benefit is not traded in a market
(e.g., ecosystem services), economists use methods such as contingent
valuation surveys to elicit the amount that individuals would be
willing to pay for the benefit.
[21] A recent report sponsored by the British government (i.e., the
Stern Review) concluded that relatively aggressive emissions reductions
by the global community were economically justified. Several economists
criticized its discounting approach. See appendix V for literature
citations on this topic.
[22] IPCC, 2007: Summary for Policymakers. In Climate Change 2007:
Impacts, Adaptation and Vulnerability. Contribution of Working Group II
to the Fourth Assessment Report of the Intergovernmental Panel on
Climate Change, M. L. Parry, O. F. Conziani, J. P. Palutikof, P. J. van
der Linden, and C. E. Hanson, Eds., Cambridge University Press,
Cambridge, United Kingdom, 7-22.
[23] S. 280 (Lieberman), S. 309 (Sanders), S. 317 (Feinstein), S. 485
(Kerry), S. 1766 (Bingaman), S. 2191 (Lieberman/Warner), H.R. 620
(Olver), and H.R. 1590 (Waxman).
[24] The remaining 4 panelists did not provide a response.
[25] In specifying an initial price for a cap-and-trade or hybrid
program, the emissions cap could be set at a level that would be
consistent with the initial price (i.e., the targeted permit price).
[26] One panelist preferred a policy that set a price for each
individual greenhouse gas as opposed to one price for all emissions.
[27] Several noted that some categories of benefits, such as
establishing a price signal, are not benefits per se because they are
not the result of reducing emissions. Nonetheless, because these
categories were identified by other panelists as benefits of actions to
address climate change, we asked all the panelists to rate their
importance.
[28] CCSP cited (1) the amount that emissions must be reduced to
achieve an emissions path to stabilization, and (2) the technologies
that are available to facilitate changes in the economy as reasons for
the difference in stabilization costs between models.
[29] The science of climate change refers to knowledge about the effect
on the climate of factors such as greenhouse gas concentrations,
clouds, and the carbon cycle.
[30] The science of climate change refers to knowledge about the effect
on the climate of factors such as greenhouse gas concentrations,
clouds, and the carbon cycle.
[31] Adler, Michael, and Eric Ziglio, eds. Gazing into the Oracle: The
Delphi Method and Its Application to Social Policy and Public Health
(Bristol, Pennsylvania: 1996).
[32] The responses presented in this report are from the second
questionnaire, supplemented with examples and anecdotes from the open-
ended responses in the first round, and represent the views of the 18
panelists who participated in both phases of the panel.
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