Part I: Introduction Part II Sources of greenhouse gases and the economy International action timeline Controversy: Is climate change natural? Controversy: Economic analysis of climate change Part III The Economic Problem The Political Problem Growth and Carbon Emissions Part IV What is cap and trade? How does it work? What about a carbon tax? Which system works better? Political feasibility Conclusion
Climate Change VS Global Warming Climate change means…. [M]ajor changes in temperature, rainfall, snow, wind patterns, or any other distinct climate phenomenon lasting for decades or longer, (Environmental Protection Agency). Global warming is… An average increase in temperatures near the Earths surface and in the lowest layer of the atmosphere. snowstorm_cars1.jpg Global warming and climate change are often used interchangeably. In reality, global warming as a temperature change is a mechanism that drives the larger phenomenon of climate change.
Natural factors such as changes in the Suns energy or slow changes in the Earths orbit around the sun Natural processes such as changes in ocean circulation Human activities that change the atmospheres makeup ( anthropogenic changes ): Include burning fossil fuels or changing the land surface (such as cutting down forests or building developments in cities and suburbs) change-599.jpg
The scientists for the Intergovernmental Panel on Climate Change, IPCC, say that it is very likely, (greater than 90 percent chance) that most of the warming we have experienced since the 1950s is due to the increase in greenhouse gas emissions from human activities. For over the past 200 years, the burning of fossil fuels and deforestation have caused the concentrations of heat-trapping "greenhouse gases" to increase significantly in our atmosphere. These gases prevent heat from escaping to space, somewhat like the glass panels of a greenhouse.
If humans continue to emit greenhouse gases at or above the current pace, we will probably see an average global temperature increase of 3 to 7°F by 2100, and greater warming after that. Those few degrees are likely to have huge consequences for the earth, and life, as we know it. The impacts of global climate change are expected to be vast and far-reaching. They will affect the environment, the economy and the equality of opportunity of people all over the world. Both the direct and indirect consequences of climate change will effect every sphere of sustainability.
Decreasing global ice packs, is accelerating warming, and initiating the onset of other climate changes. Top: com /wpf/media- live/photologue/photos/2009/09/02/cach e /1355_600x450.jpg Climate Change Indicators Additionally, this melting is slowly raising sea levels, changing coastlines across the globe, threatening existing marine and coastal ecosystems and economies, and even threatening entire nations… Center: According to the IPCC, all regions of the world show an overall net negative impact of climate change on water resources and freshwater ecosystems. Changes in yearly climate will impact agricultural productivity and food distribution in a number of ways. Warmer temperatures would increase growing seasons further north and possibly prevent certain crops from growing in the increasingly hot south. Bottom:
Based on the rapid rate of projected climate change, strained ecosystems adaptive capacity is likely to be exceeded, greatly threatening species diversity. Furthermore, the ability of ecosystems to adapt to climate change is further severely limited by the effects of urbanization, barriers to migration paths, and fragmentation of ecosystems. Ecosystem Strain as Indicator
Changes in these resources are just the tip of the melting ice burg when it comes to climate change impacts that we will have to deal with. The question is whether we can adjust to these changes by creating extensive adaptation plans. According to a report cited by the EPA, the literature indicates that U.S. society can on the whole adapt with either net gains or some costs if warming occurs at the lower end of the projected range of magnitude, assuming no change in climate variability and generally making optimistic assumptions about adaptation. However, with a much larger magnitude of warming, even making relatively optimistic assumptions about adaptation, many sectors would experience net losses and higher costs.
If that were the case, many believe that climate change will cause a mass migration of people to escape effects. The most commonly cited prediction is that 200 million people will be forced to move as a result of climate change by 2050, although other projections range from 50 million to 1 billion people moving during this century. How will climate migrants be viewed? As climate refugees or climate migrants? The term climate refugee implies that some will literally need to seek refuge from the impacts of climate change, will find themselves in as desperate a situation as those of other refugees, and will deserve international assistance and protection. However, the current definition of a refugee in international law does not extend to people fleeing environmental pressures, and few states are willing to amend the law. Equally, the description climate migrant underestimates the involuntariness of the movement, and opens up the possibility for such people to be labeled and dealt with as irregular migrants (Koser 2009).
Part II: Outline Sources of greenhouse gases and the economy Timeline of international action on climate change Controversy: Is climate change natural? Controversy: Economic Analysis of Climate Change Outline
As the pie chart shows, the majority of emissions worldwide come from the combustion of fossil fuels, including natural gas, petroleum, methane, and coal. Many people who argue against aggressive action on claim that this level of fossil fuel consumption is necessary for global economic health and, according to neoclassical economics, therefore necessary for human well-being. This politically-convenient argument promotes the status quo of energy use and ignores several facts. First, not all emissions are economically productive. Fugitive emissions (from leaks and faulty equipment) accounted for 9% of global emissions in That is almost as much greenhouse gas as were produced in all manufacturing and construction. Furthermore, improvements in efficiency would allow companies to generate more kilowatt hours of electricity from less fossil fuel. In addition, clean renewable energy could, in many nations, replace much of the carbon-based economy. Sources of greenhouse gas emissions worldwide (2000) Graph source: Dow, Kristen and Thomas Downing. The Atlas of Climate Change. p 41
The intertwining of fossil fuel combustion and emissions raises an important issue: should we distinguish between survival and luxury emissions of greenhouse gases? Indian economists Anil Agarwal and Sunita Narain pioneered this idea in in their 1992 pamphlet, Global Warming in an Unequal World. A family might be happier driving two cars, but these carbon emissions are not as essential for their welfare as the carbon they burn heating their home in the winter. Adopting emissions standards that distinguish between survival and luxury could make international climate treaties acceptable to developing nations like India. However, it will be difficult to establish a universal method for distinguishing between types of emissions. We will discuss issues of equity and responsibility for climate change in future sections.future sections Heating oil delivered to house in Massachusetts A two-car garage in the US vs Left: Right:
1988: Creation of Intergovernmental Panel on Climate Change (IPCC) 1994: Creation of UN Framework Convention on Climate Change 1997: Kyoto Protocol: each country to reduce greenhouse gas emissions ~5% below 1990 levels 2001: US rejects Kyoto Protocol 2009: UN summit in Copenhagen negotiation ends in disarray. No treaty 2005: Kyoto Protocol goes into effect
1988 : Marked the explosion of climate change onto the political scene. In 1988, the 1 st international meeting on climate change and the IPCC was created : The founding of United Nations Framework Convention on Climate Change, which established a process for international emissions cuts : The Kyoto Protocol: Each country supposed to gets its emissions 5% below 1990 levels. Not legally binding : The Protocol was dealt a serious blow in 2001 when US rejected it. Too few countries had ratified it; it didnt go into effect : The Protocol finally entered into effect when Russia ratified it, meeting the required number of signatories. Signing the Protocol did not mean much to those who did ratify. Canada, one of the first signatories, continues to be one of the worst emitters :Last December, the most recent negotiations at Copenhagen ended in disarray, dashing hopes of the Maldives and millions of people around the world for an aggressive treaty The week of negotiation ended in a close-door session between the US, China, and India. The other participating nations refused to note (recognize) the resulting agreement.
One reason that nothing has been done on climate change is the lingering confusion over the science. Some people dismiss anthropogenic climate change as part of a natural cycle. The recent changes in temperature cannot be accounted for by natural causes. The blue shading in the lower graph represents the change in atmospheric temperature (radiative forcing) produced by natural causes. If natural radiative forcing was only the driver of global warming, the global temperature change line (heavy black line) would fall mostly in the blue shaded area. It does not. The yellow shading in the upper graph represents natural and anthropogenic forcing. The global temperature line fits entirely in this region. Much of the recent controversy about climate science is manufactured. Research by James Hoggan and Greenpeace has revealed a network of scientists and think tanks dedicated to discrediting climate science, largely funded and staffed by oil and gas companies. For updates on the latest publications in climate science, visit the blogs Real Climate (www.realclimate.org) or Climate Progress (www.climateprogress.org)www.realclimate.orgwww.climateprogress.org For a map of the exchange of staff and resources between ExxonMobil, denier think-tanks, and denier politicians, visit For a book about the denial machine, see Richard Littlemores The Climate Cover-Up (2007). Figure source: Pratt, Marney. "Climate Change." Physiological Ecology. Mount Holyoke College, South Hadley, MA. Lecture. Natural & anthropogenic forcing Natural forcing only
The 2007 Stern Review is one of the most influential cost-benefit analyses of climate change. It concluded that costs of inaction on climate change (5-20% of global GDP) far outweighed the costs of acting to limit greenhouse gas emissions (under 1% of global GDP). Although widely-cited and based on conventional neoclassical economic modeling, the Stern Review faced intense criticism from many economics. The economic study of climate change is controversial in and of itself. It is far from objective. Economic analyses of climate change require an economist to make ethically-loaded decisions about what she values. In calculating the damage of unabated climate change, economists must decide value of future generations (discount rate), lives lost, and cultural practices disrupted. Economists contested the Stern Review specifically because of the values its authors assigned to these intangibles. In order to demonstrate a high valuation of future generations, the Stern Review applied a discount rate of almost 0%. Other economists argued that this discount rate was far too low because those economists operate on the assumption that future generations will be wealthier (and therefore more able to deal with climate change) than our generation. In our next sections, we will explore the role of the market system in driving climate change and, potentially, mitigating it.driving climate change mitigating it
External Costs -External Costs of Carbon The Economic Problem -External Costs -External Costs of Carbon -Market for Oil -External Costs & Oil Market Failure -Market Failure & Government Intervention -USA-China The Political Problem -USA-China -Capability and Responsibility Growth and Carbon Emissions Part III: Outline Outline
Carbon dioxide is the greenhouse gas with the highest concentration (391 parts per million) and hence has the greatest global warming potential. In dealing with the economic and political issues, we will focus on specifically CO 2. Since the industrial revolution there has been a 50% increase in the amount of atmospheric carbon dioxide. We have already seen that there is sufficient evidence to suggest that these emissions have an incredible impact on global temperature.incredible impact External costs are costs that are borne by third parties who are not directly involved in the production or consumption of goods or services that generate CO 2. The free market is a self-regulating mechanism which, in theory, seeks to maximize the welfare of the society. Thus in this capitalist free market system, why does the market for carbon-producing activities continue to give positive market signals for their continuation or even expansion, while the damaging effects of those activities are well-known? Lets just say that there are some costs that Adam Smiths invisible hand cannot get a hold, given its narrow scope which extends only to the participants of the market.
The third parties or the involuntary victims of impacts of carbon emissions can be grouped as follows: Plant and animal life forms: The polar ice caps are becoming smaller than ever before in human history, at a rate faster than ever. The overall increase in average temperatures is causing thermal stress for various plant and animal life forms and rapidly changing their habitats and evening threatening their existence. Low-lying and island states: Sea levels have risen by 2 inches over the past century as a result of anthropogenic climate change. Small island states face the risk of being submerged within a few decades and are bearing significant adaption costs. Future generations: Much of the costs of global warming are yet to come: extreme climate patterns, reduced supply of fresh water, increased desertification and lost biodiversity. The poor and vulnerable: The poor rely more heavily directly on nature for their subsistence through farming, fishing, forestry etc. and so, are disproportionately affected by climate change. They have relatively very little demand for manufactured goods or large quantities of fossil fuels.
The market system that is actually responsible for generating the CO 2 only takes into consideration private costs : borne by producers (wages of labors, rent or cost of land, cost of raw materials etc) and weighs this against private benefits to consumers from consuming the commodity. The welfare of parties involved are maximized where marginal private cost ( MPC ; cost from additional unit of production) is equal to marginal private benefit ( MPB; benefit from the additional unit consumed) and accordingly the price and quantities are set. If the market for oil is considered then the graph demonstrates a price of $77.62 that would be set for y number of barrels bought and sold in the market. Price/barrel of Oil Barrels Bought and Sold $77.62 y MPC MPB
In this market the external costs have not been accounted for; the true cost of using oil is not reflected in the price. Social cost is the cost to producers plus the external cost to the rest of the society due to oil consumption/production. By reconstructing the market system with the representation of the marginal social cost ( MSC ) we arrive at a very different picture. (For this example, we can safely assume that the benefits of consuming oil are borne only by the consumers; there are no external benefits) Barrel of oil = $77.62 Carbon emitted per barrel (on average)= 317 kg Social cost = $87.22 (estimate) Price/barrel of Oil Barrels Bought and Sold MPB=MSB MPC $77.62 y Marginal Social Cost = MPC + External Cost $85.22 x Socially optimum level occurs at quantity x barrels. At this lower level the social cost of burning oil $85.22 The price reflects the full cost to society and thus reduces oil production from y to x
Market failure occurs in case of various goods that have large external costs or benefits, such as alcohol, cigarettes, and public goods. In all these instances, the market either engages in overproduction (in cases of external costs) or underproduction (in cases of external benefits). In these situations, governments employ various solutions that may be market based (carbon tax), non- market based (carbon quotas) or combinations of both (cap and trade). All these methods are aimed at bringing carbon emissions to a level that is sustainable and socially efficient. However, the following are usually the difficulties in faced by all intervention plans: Overall lack of political will due to the perceived implications of carbon reductions on the economy Identifying and quantifying external costs are complicated The market failure in carbon is a global issue and consensus at the international political level becomes very difficult
The Kyoto Protocol bring together countries who commit to participating in the methods proposed like carbon trading, clean development mechanism and joint implementation to reduce their emissions about 5% below the 1990 levels. In 2001, the US refused to ratify the Kyoto Protocol. This is because China, despite being one of the biggest polluters in the world (Fig 1) was classified by the conditions of the Protocol as a developing nation which would not have to reduce their emissions at that time. This view fails to take into account Chinas population. When we consider per capita emissions of carbon dioxide the picture changes we see that China not really one of heaviest polluters on the planet (Fig 2). Figure 1: Total CO 2 emissions 2000 (thousand tons) Figure 2: Per capita CO 2 emissions 2000 (tons)
How are we to define to what extent individual countries should take up the burden of the fight against climate change? The UNFCCC states that all countries should take up the fight in climate change… ….on the basis of equality and in accordance with their common but differentiated responsibilities and respective capabilities. The Kyoto Protocol classifications of which countries are required to cut emissions are quite arbitrary and invite dispute. However, a fairly recent document, The Right to Development in a Climate Constrained World, attempts to actually identify and quantify the factors that determine the responsibility and capability of individual nations to fight climate change. These factors are used to calculate each nations equitable share of emissions reductions. The Right to Development in a Climate Constrained World
The Development Threshold is the minimum per capita income needed to have sustained access to food, water, shelter, health and education. Capability Index is calculated on the basis of income in excess of the Development Threshold. Responsibility Index is based on a countrys historical emissions level which has contributed to the existing amount of carbon in the atmosphere. The combined capability-responsibility index ( CRI ) demonstrates the equitable proportion of the cost of any climate change prevention plan that should be borne by each countries. The concept of CRI on the UNFCCC principle of common but differentiated responsibilities How to read the table: If global carbon emissions are to be reduced by any amount, 33.1% of that reduction should come from the US while China is liable for only 5.5%.
Much of opposition to and debate about abating climate change arise from the notion that protecting the environment means limiting economic growth and jobs and hence, hurting peoples livelihoods. This notion is deeply flawed. First, while a structural change in the economies of nations will be costly in the short term, the long term benefits will eventually pay off. More importantly, such a change is likely to create employment in new sectors. Empirically it can be shown from the map that economic growth and carbon emissions are not necessarily correlated. The map shows the carbon intensity for nations for every $1000 of GDP. The yellow, orange and red areas mark countries that have increased carbon intensity while the greens mark those that have decreased carbon intensity, meaning they decreased emissions while achieving the same level of economic growth.
What is it? How does it work? What about a carbon tax? Which system works better? Political feasibility Outline
Government caps the total allowable amount of carbon dioxide emissions over a period of time It divides the total allowable emissions into separate allowances (carbon credits) It gives away or auctions these carbon credits to companies If a company emits less carbon than it has credits for, it can sell the remaining credits Companies can thus buy and sell credits among themselves; the market determines price per credit Cap and trade system thus allows market forces to fix an externality The system-wide cap eventually goes down over time in order to reach socially optimal level of carbon dioxide
In a cap and trade system, the limited number of licenses to emit a specified quantity of pollutant gives everyone an incentive to reduce pollution. Buyers would not have to acquire as many licenses if they can cut back on their emissions, and sellers can unload more licenses and sell them if they cut back on their emissions.
Carbon tax is a per-unit tax on carbon emissions. The tax is applied where carbon enters the environment. The rate of taxation is based on the marginal external cost of carbon and this aims to ensure that production occurs at the socially optimal level. As a result, the higher prices reflect the true social costs of carbon. Pros it would be simpler because the institutions already exist countries have an incentive to enforce taxes it requires less than perfect harmonization on an international level in comparison to cap and trade it puts an explicit cost on carbon Cons harmonized tax structure across countries may be hard (if not impossible to) achieve- this reverses the simplicity argument carbon taxes do not offer an incentive for others to join a carbon tax ignores the macroeconomic reality of a possible recession/stagflation
Cap and trade price per unit carbon is determined by the market amount of pollution is known in advance The two systems therefore produce different types of uncertainty. Carbon tax price per unit carbon is set and known the amount of pollution does not have an upper limit Another important difference has to do with government revenue. A pollution tax imposes costs on the private sector while generating revenue for the government. Cap and trade is a bit more complicated in the sense that if the government simply auctions off licenses and collects the revenue, then it is just like a tax. Cap and trade, however, often involves handing out licenses to existing players, so the potential revenue goes to industry instead of the government.
environmental effectiveness the relative risks of bad design costs simplicity political feasibility implications for an international regime In terms of political feasibility, the assessment may depend on how far one looks beneath the surface. Tax is a politically toxic word, but with a more prolonged debate, do cap and trade programs look much more feasible?
If we are to have a carbon pricing system, the critical issues are about designing it to work well: broad coverage, flexibility, broad international participation should be the central goals. Theoretically, if designed well, both systems will have very similar environmental benefits. Taxes would be able to provide the same emission reductions and the same carbon concentrations as permits. Just as the number of permits would decline over time to reflect a particular target, tax rates would go up over time to achieve it.
While changes on the macroeconomic level are up to a limited number of people, there are other opportunities for everyone to be the change s/he wants to see in the world. For example, becoming more energy efficient or recycling your waste. Individuals can and should make a difference. It is worth keeping in mind that the costs of inaction will be much higher than the costs of action. Dont be taken in by the notion that this is all about people and jobs versus the environment. Focusing on sustainability rather than purely on economic growth in terms of GDP brings us one step closer to changing the system for the better. Conclusion
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