Policy Implications of Greenhouse Warming Mitigation, Adaptation, and the Science Base (1992) / Chapter Skim
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20 Framework for Evaluating Mitigation Options
20 Framework for Evaluating Mitigation Options
Pages 171-200
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From page 171... ...
Indeed, the very human difficulty of perceiving this indirect and long-term relationship is an important component of the problem of greenhouse warming. It is easier to see the direct costs of decreasing CO2 emissions than to estimate the benefits of doing so.
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From page 172... ...
Although it has been possible to assemble an overview of the options for mitigating greenhouse warming, the panel urges readers to bear in mind the formidable problems of theory and practice limiting the precision of the estimates that can be provided at this time and even the qualitative accuracy of the picture that can be presented. BACKGROUND Greenhouse warming is a phenomenon of the atmosphere, taking place in a global "commons." Similar emissions of greenhouse gases have similar potential to affect global climate, regardless of their country of origin.
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From page 173... ...
For example, inducing urban commuters to switch from automobiles to mass transit would reduce an important source of greenhouse gas emissions. Yet experience in the United States suggests that such a switch would not occur at the energy prices observed in recent times.
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From page 174... ...
Of course, many of the issues bear on societal and individual preferences having components that extend beyond quantifiable costs. ENERGY MODELING The scope of the task of cost-effective choice can be seen through a review of the work done to date by economists who have estimated the costs and, less often, the benefits of mitigating greenhouse warming.
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From page 175... ...
Nordhaus also estimates the marginal costs of achieving efficient reductions in greenhouse warming through reductions in CFCs and through reforestation. He then combines the three cost curves for CFCs, reforestation, and CO2 abatement into a single efficient marginal cost curve for greenhouse gas reductions.
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From page 176... ...
Nordhaus stresses that the actual costs of regulatory approaches are likely to be higher, because government-mandated reductions in emissions are likely to be less efficient than a carbon tax. Analyses like Nordhaus's, however, implicitly ignore institutional barriers that impede efficient economic adjustments to change.
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From page 177... ...
i .> a) 41 0 co o c' FIGURE 20.2 The Nordhaus study of marginal cost of greenhouse gas reduction.
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From page 178... ...
It shows the carbon tax rising from nearly zero in 2000 to nearly $400/t C in 2010 and peaking at about $600/t C in 2020.i The tax falls thereafter, presumably due to a slowing of economic growth and the expansion of more efficient (lower emissions) energy supply technology.
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From page 179... ...
model analyzes long-term, global emissions of CO2 by adopting a simplified picture of an economy that generates CO2 from fossil fuel burning. Because it was developed early in the current cycle of attention to greenhouse warming, the model has been widely used (e.g., Lashof and Tirpak, 19911.
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From page 180... ...
The answer lies in understanding the inherent limitations of each approach with respect to the task of evaluating specific mitigation options. Energy modeling, in its current state of development, is limited in its ability to evaluate the direct reduction or offset of greenhouse gas emissions achievable by different options.
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From page 181... ...
Power Plant FIGURE 20.4 Technological costing analysis of energy efficiency in the buildings sector. calls "technological costing," is better suited to this task but limited in its ability to assess overall consequences for the economy.
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From page 182... ...
Moreover, consumer and commercial discount rates are generally higher than the discount rates typically used in the societal cost-benefit analyses discussed below in the section on rates of return (Meter and Whittier, 1982; Train, 1985; Ruderman et al., 1987; Electric Power Research Institute, 1988; Peters, 1988; Ross, 1989; Gladwell, 1990; Koomey, 1990~. Indeed, the market imperfections already in place provide significant room for mitigation.
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From page 183... ...
The technological costing approach should be seen as complementary to the modeling described above, which uses simulation techniques to make inferences from economic data and assumptions about economic structure. Energy modeling studies are likely to be useful whenever observations of market behavior are available.
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From page 184... ...
Analyses that use prices only as static indicators of current value can miss dynamic adjustments of great significance on time scales of decades. Uncertainties in Energy Modeling Although the timing of greenhouse warming is not known with precision, it is highly likely that any effects will unfold over times much longer than the normal horizons of economic forecasting.
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From page 185... ...
The energy modeling approach takes such issues of demand, supply, and consumer behavior into account, whereas the technology costing approach does not. Although the panel recognizes the possibility of such interactions, it believes the technological costing approach is better suited to responding to the panel's charge of evaluating the comparative advantages and disadvantages of specific mitigation options so that it can identify and rank the available mitigation strategies.
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From page 186... ...
If our principal concern is the effects of our current actions on our grandchildren and great-grandchildren, we should compare greenhouse mitigation actions with alternative legacies that can be left to future generations. The conventional approach to making this comparison is to apply a discount rate, comparing the value of investments against the value of an equivalent sum put into an interest-bearing instrument.
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From page 187... ...
An extensive and complex literature exists that attempts to sort out which of several possible discount rates should be used in the United States, depending on whether the investment in question is deemed to displace private investment, personal consumption (where consumers are borrowing at rates higher than 10 percent to consume now) , or government investment (e.g., see Hausman, 1979; Lind, 1982~.
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From page 188... ...
It is ordinarily assumed in economic analyses that gross world product per capita will grow at a rate between 1 and 3 percent per year over the next 50 years, a magnitude that depends partly on advancing technology and partly on the rate at which existing technology is absorbed by economies that are not operating at the frontier of existing technology. If the costs of climate change are proportional to per capita gross world product, and if that quantity grows, for example, at 3 percent per year, then the yield criterion for mitigation actions drops to "at least 7 percent." It should be noted that the costs of global climate change may not be proportional to gross world product.
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From page 189... ...
Roughly speaking, however, one can say that where an uncertain outcome (the future payoff from mitigation actions) is negatively correlated with overall economic prospects (as measured by future gross world product per capita)
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From page 190... ...
Total costs for the period of analysis are divided by the number of years, and all comparisons over time are assumed to be on the same basis. Both the cost and potential emission reduction are converted to CO2 equivalents to allow comparison across different mitigation options.
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From page 191... ...
Total costs for the period of analysis are divided by the number of years, and all comparisons over time are assumed to be on the same basis. Both the cost and the potential emission reduction are converted to CO2 equivalents to allow comparison across different mitigation options.
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From page 192... ...
These include some energy efficiency measures, such as variable speed motors or compact fluorescent lighting. As mentioned above, these actions may be worth more to electric utilities than the costs of producing and installing them because the improved efficiency allows the electric utility to defer expensive additions to generating capacity.
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From page 193... ...
Lowering emissions by 10 Mt/yr for 10 years may not have the same effect on greenhouse warming as lowering the stock of greenhouse gases by 100 Mt in a single year. This implies that different CO2 reduction patterns will have different effects on greenhouse warming with time and thus- different benefits.
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From page 194... ...
If uncertainty cannot be avoided, one needs to know what would happen under different circumstances, so that serious errors can be forestalled and affordable ones identified. Therefore, as illustrated in Chapter 29, after using the best information that the Mitigation Panel had available to evaluate the cost-effeGtiveness and emission potential of the various mitigation options at discount rates ranging from 3 to 3()
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From page 195... ...
CONCLUSIONS The charge to the Mitigation Panel was to "examine the range of policy interventions that might be employed to mitigate changes in the earth's radiation balance, assessing these options in terms of their expected impacts, costs, and, at least in qualitative terms, their relative cost-effectiveness." In this chapter, the panel has examined the two primary methods that can be used to evaluate greenhouse gas mitigation options: technological costing and energy modeling. A ~ ~ ~ ~~ ~ ~ ~ ~ 1 ~^1~ ~ ~ ~ 1 ~ _ While the energy modeling approach uses models anal predict society s responses based on past societal behavior, technological costing attempts to determine the cost-effectiveness and emission reduction potential offuture behavior and assumes that current public or private market imperfections can be overcome.
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From page 196... ...
Tradeable emission reductions (offset, SO2 abatement credits, CFC permits)
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From page 197... ...
· There are likely to be substantial economic impacts from controlling greenhouse gas emissions. Transient effects and transaction costs are important and potentially large, but they are highly uncertain, and methods for making usable predictions of these dynamic effects do not exist.
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From page 198... ...
1979. Individual discount rates and the purchase and utilization of energy-using durables.
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From page 199... ...
1982. Purchasing patterns of energy efficient refrigerators and implied consumer discount rates.
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From page 200... ...
1985. Discount rates in consumers' energy-related decisions: A review of the literature.
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