Timing and the Cost of Emissions Reductions Stragegies
By Jae Edmonds and Marshall Wise
The Earth’s climate is a global commons, and the Framework Convention on Climate Change (FCCC) sets as its goal the protection of that commons by calling for ultimate stabilization of the concentrations of greenhouse gas below “dangerous” levels. In considering the implications for agreements to control the atmosphere, Edmonds and Wise find that framing negotiations in terms of cumulative emissions constraint, while an attractive intellectual construct, is vulnerable to a “drop out” problem. Other arrangements that might be considered include framing the problem as a staged activity, with the principal features of Stage I being technology development and deployment, Stage II being emissions stabilization, and Stage III being phase-out of carbon-emitting technologies. This strategy is potentially useful in implementing ceilings of 500 ppmv or higher. Critical to the success of such a strategy is Stage I. If non-emitting technologies can be developed and deployed on a global scale, at costs that are comparable to present technology costs, then the problems of implementing Stages II and III are minimal.
Devising a Long-Term Strategy
Minimizing the economic burden to society of reductions in carbon dioxide (CO2) will require taking advantage of the fact that least-cost strategies have a time profile with three distinct stages in which emissions initially rise (present to approximately 2020), are capped (2020 to 2050), and then ultimately decline (2050 onward). All three stages must be implemented together so that new investments and technology developments in the first phase are made in recognition of the coming emissions cap and subsequent emissions reductions. The reality of the phase two cap is critical because new technology development and dissemination in preparation for the cap is essential to minimizing costs.
Ultimately, stabilization of concentration means no net emissions, but this is not the same as presuming that near-term emissions must be kept at 1990 levels. In fact, the Intergovernmental Panel on Climate Change (IPCC) and others have computed emissions cases leading to the stabilization of atmospheric concentrations of CO2 that range from 450 to 750 ppmv. In all cases, the maximum CO2 emissions occur between 1990 and 2100, then decline thereafter.
Most researchers, including the IPCC, anticipate that CO2 emissions will grow with increasing energy use (see Figure 1). The cost of holding these emissions in check depends on the set of technologies available for decoupling energy use growth from emissions. The IPCC Working Group II report describes a variety of technologies that lower, capture, or sequester carbon emissions, as well as such carbon-free technologies as solar electric, nuclear fission, nuclear fusion, hydroelectric, geothermal energy, wind energy, and tidal energy. Biomass farming also adds no net CO2 to the atmosphere.
[Figure 1: Primary Energy Consumption by Region ]
The successful development and deployment of advanced energy technologies could make further policy intervention to insure the emissions cap for a 550 ppmv CO2 concentration ceiling relatively modest (see Figure 2, line 3). If that development and deployment fails, however, the cost of insuring the emissions cap is significantly greater. The economic burden of stabilizing CO2 concentrations, measured in terms of percentage loss of GDP in the four regions-OECD, Eastern Europe and the former Soviet Union (EEFSU), China, and the rest of the world (ROW)-is shown in Figure 3. Burdens for the OECD and the ROW regions rise slowly over time reaching approximately 0.5 percent of GDP by the end of the next century. GDP losses from carbon emission reductions are minimized by encouraging the development and spread of new energy production technology.
[Figure 2: Carbon Tax Rate to Accommodate an Atmospheric CO2 Ceiling ($/metric tonne)]
[Figure 3: Cost of Stabilizing Atmospheric CO2 Concentrations at 550 ppmv (% GDP)]
To examine the question of OECD leadership, we have computed the emissions reductions required for the OECD to maintain atmospheric concentrations below 450 ppmv or 550 ppmv independently. By the year 2050 the OECD is incapable of maintaining a global trajectory of emissions reductions consistent with a 550 ppmv ceiling even if it reduces its own emissions to zero. If the ceiling is lowered to 450 ppmv, the date occurs by 2025. The OECD cannot control the atmosphere independently of other nations of the world. If the OECD undertakes independent actions, other nations also must join soon thereafter or CO2 concentration ceilings will be breached.
Why Stabilizing CO2 Concentrations Is Cheaper Than Stabilizing CO2Emissions
To understand why stabilization of CO2 concentrations of 550 ppmv can be cheaper than stabilizing emissions at 1990 levels it is important to note that stabilizing global CO2 emissions implies that concentrations of CO2 will rise to 500 ppmv by the end of the next century. Furthermore, the concentration will be even higher in the century that follows. To hold CO2 concentrations below that level means that a long-term strategy to stabilize the atmosphere must lower emissions below current levels at the end of the next century. To a first approximation, the cumulative emissions reductions over the next century for a CO2 concentration of 550 ppmv at the end of the next century are the same, independent of the annual pattern. This means that the least-cost strategy is the one which reduces emissions when it is cheapest to do so. There are several reasons that it is cheaper to reduce emissions in future years than it is to reduce them today.
- Carbon cycle. Natural sinks have a longer period over which to remove emissions early in the period of analysis. This implies higher cumulative emissions for trajectories which stabilize at a similar concentration but with larger near-term loading. The carbon cycle dividend can be substantial.
- Technology development. Emission reduction technologies continue to evolve, and the costs of emissions reductions can be expected to decline with time. The IPCC Working Group II has identified a wide range of promising technologies which will reduce the future costs of emissions reductions relative to those available today.
- Discounting. The further into the future that a burden must be undertaken, the smaller the resources that would have to be set aside today to undertake it. This is because resources can be invested in capital which expands productive capacity.
- Capital Utilization. By making changes slowly and in an orderly manner, new capital stocks can be selected which reflect the fact that emissions will have to be reduced, but existing capital stocks will not have to be operated in an environment that is remarkably different than anticipated when they were installed.
Implications for Action
The above analysis does not mean do nothing now. It means that a strategy for implementing the FCCC must begin immediately. But to minimize the costs to society, the strategy should be long-term and global in its focus. To make the implementation of the FCCC relatively painless, cost-effective advanced energy technologies must be developed and deployed. In addition, a way must be found to attract both developed and developing nations to the process. The OECD nations alone will be unable to stabilize CO2concentrations.
While the above discussion demonstrates the potential for reducing society’s burden in implementing any ceiling on atmospheric concentration of CO2, translating that research result into an international agreement will not be easy. While it would be attractive to allocate cumulative emissions to nations and allow individual nations to allocate them over time, potentially crippling problems of enforcement of an intergenerational agreement make such an approach less appealing.
Alternatively, one could envision a protocol created which identified three interconnected phases: Phase I (present to 2020) in which targets and timetables for technology development and dissemination were established; Phase II (2020 to 2050) in which an emissions cap would be enforced; and Phase III (2050 onward) in which there would be a phaseout of all free venting of carbon into the atmosphere (see Figure 4). The first phase could provide incentives for technology development and deployment, which would be supported by a set of steps which would place increasing restrictions on emissions as they approached the emissions cap, e.g. a global emissions cap of 11 PgC/yr for a 550 ppmv ceiling. Phase II would be a period in which a global emissions cap, similar to those currently under discussion, would be put into effect. Phase III would simply ban new investments in equipment which freely vented carbon to the atmosphere.
Achievement of the goals of the FCCC may be less costly than generally presumed. Costs of stabilizing atmospheric CO2 concentrations can be reduced by developing a long-term strategy for emissions controls. The development and deployment of advanced energy technologies are critical determinants of the costs of achieving the goal of the FCCC. But stabilization of CO2 concentrations requires a long-term, global effort. The OECD alone cannot control the atmosphere. Unless a long-term strategy can be found which is attractive to developed and developing nations alike, the goal of the FCCC is likely to remain illusive, even were Annex I Parties to agree to stringent “emission” reduction policies and measures.
Jae Edmonds and Marshall Wise. Dr. Edmonds is Technical Leader, Economic Programs, and Mr. Wise is Senior Research Scientist at Battelle, Pacific Northwest Laboratories. This report is based on a paper prepared for a September 13, 1995, policy conference sponsored by the American Council for Capital Formation Center for Policy Research, and appears in the Center’s recently published monograph, An Economic Perspective on Climate Change Policies.