Warwick J. McKibbin, Adele Morris, and Peter J. Wilcoxen
Publication Date:
11-2008
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
To estimate the emissions reductions and costs of a climate policy, analysts usually compare a policy scenario with a baseline scenario of future economic conditions without the policy. Both scenarios require assumptions about the future course of numerous factors such as population growth, technical change, and non-climate policies like taxes. The results are only reliable to the extent that the future turns out to be reasonably close to the assumptions that went into the model.
Topic:
Climate Change, Development, Economics, and Energy Policy
The overall economic efficiency of a quantity-based approach to greenhouse gas mitigation depends strongly on the extent to which such a program provides opportunities for compliance flexibility, particularly with regard to the timing of emissions abatement. Here I consider a program in which annual targets are determined by choosing the optimal time path of reductions consistent with an exogenously prescribed cumulative reduction target and fixed technology set. I then show that if the availability of low-carbon technology is initially more constrained than anticipated, the optimal reduction path shifts abatement toward later compliance periods. For this reason, a rigid policy in which fixed annual targets are strictly enforced in every year yields a cumulative environmental outcome identical to the optimal policy but an economic outcome worse than the optimal policy. On the other hand, a policy that aligns actual prices (or equivalently, costs) with expected prices by simply imposing an explicit price ceiling (often referred to as a "safety valve") yields the opposite result. Comparison among these multiple scenarios implies that there are significant gains to realizing the optimal path but that further refinement of the actual regulatory instrument will be necessary to achieve that goal in a real cap-and-trade system.
Of the many regulatory responses to climate change, cap-and-trade is the only one currently endorsed by large segments of the scientific, economic and political establishments. Under this type of system, regulators set the overall path of carbon dioxide (CO2) reductions, allocate or auction the appropriate number of emissions allowances to regulated entities and – through trading – allow the market to converge upon the least expensive set of abatement opportunities. As a result, the trading price of allowances is not set by the regulator as it would be under a tax system, but instead evolves over time to reflect the underlying supply and demand for allowances. In this paper, I develop a simple theory that relates the initial clearing price of CO2 allowances to the marginal cost premium of carbon-free technology, the maximum rate of energy capital replacement and the market interest rate. This theory suggests that the initial clearing price may be lower than the canonical range of CO2 prices found in static technology assessments. Consequently, these results have broad implications for the design of a comprehensive regulatory solution to the climate problem, providing, for example, some intuition about the proper value of a possible CO2 price trigger in a future cap-and-trade system.
Topic:
Climate Change, Economics, Environment, and Markets
Bringing in the Americans is the first task for the UN-COP-15 for the Danish government along with its EU partners. The key contents of the EU's climate leadership towards the climate conference are assessed, such as the-20% by 2020 reduction target, the effort sharing agreement and reforms of the European Trading Scheme. EU climate leadership is both based on strong public support and economic features such as a lower energy intensity of production than the U.S. The EU and Danish strategy converge in promoting the concept of a "low-carbon economy", based on first-mover advantage exports in renewables technology, such as wind power. The contents of the "Danish example" are assessed; decoupling economic growth and emissions within a "lowcarbon economy"-storyline.
Topic:
Climate Change, Environment, Treaties and Agreements, and United Nations
Aparna Mathur, Kevin A. Hassett, and Gilbert E. Metcalf
Publication Date:
12-2008
Content Type:
Working Paper
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
In discussions over how best to implement mandatory restrictions on carbon, the most commonly discussed option is a cap-and-trade system. One critical economic question surrounding cap-and-trade is how to distribute the permits. The two main competing mechanisms are free allocations to polluters (usually based on past emissions levels, output levels, or carbon intensity) and the auction of permits.
Topic:
Climate Change, Economics, Environment, and Markets
Rohit T. Aggarwala, Kelly Kleinert, Klaus S. Lackner, and Lionel McIntyre
Publication Date:
10-2008
Content Type:
Video
Institution:
Columbia University World Leaders Forum
Abstract:
President Lee C. Bollinger hosts this World Leaders Forum program featuring a panel discussion on environmental stewardship through Mayor Michael R. Bloomberg's PlaNYC initiative, Columbia's contributions to the City's sustainable future, and what role New Yorkers play in the global effort. The program will be followed by a question and answer session with the audience.
Topic:
Climate Change, Education, Environment, and Health
Clean Energy and Human Capital: Iceland- The Laboratory Small States in Global Development. A keynote address by President Ólafur Ragnar Grímsson of Iceland, followed by a question and answer session with the audience.
Topic:
Civil Society, Climate Change, Democratization, and Energy Policy
The international system—as constructed following the Second World War—will be almost unrecognizable by 2025 owing to the rise of emerging powers, a globalizing economy, an historic transfer of relative wealth and economic power from West to East, and the growing influence of nonstate actors. By 2025, the international system will be a global multipolar one with gaps in national power continuing to narrow between developed and developing countries. Concurrent with the shift in power among nation-states, the relative power of various nonstate actors—including businesses, tribes, religious organizations, and criminal networks—is increasing. The players are changing, but so too are the scope and breadth of transnational issues important for continued global prosperity. Potentially slowing global economic growth; aging populations in the developed world; growing energy, food, and water constraints; and worries about climate change will limit and diminish what will still be an historically unprecedented age of prosperity.
The human drama of climate change will largely be played out in Asia, where over 60 per cent of the world's population, around four billion people, live. Over half of those live near the coast, making them directly vulnerable to sea-level rise. Disruption to the region's water cycle caused by climate change also threatens the security and productivity of the food systems upon which they depend. In acknowledgement, both of the key meetings in 2007 and 2008 to secure a global climate agreement will be in Asia.