Nov 2014: China-US agreement on carbon emissions -President Obama pledges to reduce GHG emissions by -26 to 28% of 2005 levels by president Xi Jinping pledges that China’s GHG emissions will peak by ~2030, if not sooner, and move to 20% no-carbon energy by 2030 NOTE: US + China = 30% of global GHG emissions

content/uploads/2015/01/California-and- the-Carbon-World-Jan-2015.pdf Relevant carbon prices as of Jan 15, 2015 relative to Nov 15, 2014

carbon “taxes” cap and trade content/uploads/2015/01/California-and-the-Carbon- World-Jan-2015.pdf & S. Korea effective 1/1/15

neck-and-neck-us-and-european-ghg-emissions-trends

neck-and-neck-us-and-european-ghg-emissions-trends

Contributions to emissions changes in the EU documentation_en.htm#Reports economic growth energy efficiency renewables

End use of proceeds ($) from carbon allowances across EU

Risk = probability of outcome x severity of its consequences Costs of carbon mitigation? vs Costs of adaptation? HOW DO WE MINIMIZE RISK?

Risk = probability of outcome x severity of its consequences “tail” risk = low-probability event w/ potentially catastrophic impacts

Climate Risks are Regional

3 areas of action to minimize climate risk: 1)change business practice to become more resilient 2) investor adaptation (SEC issued guidance on climate disclosure; only 40% of S&P companies voluntarily participate) 3) public sector response – investments and policies that can reduce GHG emissions

When combine high-tail risks w/ catastrophic costs, any cost-benefit analysis (CBA) of climate change mitigation vs. adaptation is dominated by so-called “fat tail” risk. e.g. Weitzman, Martin L On modeling and interpreting the economics of catastrophic climate change. Review of Economics and Statistics 91(1): 1-19.

The Stern Review: The Economics of Climate Change commissioned by UK Prime Minister & Chancellor in 2006 Some Stern numbers: 2050 the timeframe for most of their economic analyses 550ppmthe CO 2 target level of stabilization 5-20%range of costs to world output associated with climate change comment: relatively pessimistic view of consequences -1 to 5%range of costs associated with stabilizing CO2 at 550ppm comment: relatively optimistic view of mitigation $85cost of one ton of CO 2 in Business as Usual (BAU) $25-35cost of one ton of CO 2 for 550ppm stabilization

Stern, 2008

Tail risk of temperature response to CO 2

Total cost of climate change in BAU scenario over next two centuries: -5% of global per capita consumption however, this 5% number does not take into account: 1)“non-market” impacts (how do you value human health and environmental impacts?) 2)positive feedbacks in the climate system (such as???) 3)disproportionate impact of climate change on world’s poor (equity) Including these factors could bring the cost of climate change to -20%!

What action is needed, according to Stern: Mitigation: 1.Carbon pricing (tax or trading) 2.Technology policy (spur development of low-C energy) 3.Remove barriers to behavioral change (enforce changes where economic incentives are not strong enough) Adaptation: 1.Improve climate information; esp. regional climate forecasts 2.Land-use and building planning (infrastructure decisions) 3.Natural resource protection, coastal protection, etc 4.Financial safety net for poorest members of society The Stern Report urgently calls for coordinated, international action, justified by cost-benefit analysis of climate risks (costs of -5 to -20%) balanced against mitigation (costs of -1 to -5%).

- run a “top-down” climate policy – economic impact model (limitations, assumptions, inputs?) -for a doubling of GHG (to 560ppm), benefits of mitigation $55-140billion (0.5-2% GDP) -cost of mitigation % GDP ($25-200/ton of carbon) How do we interpret a “price on carbon”?

McKinsey 2008 report on cost of US GHG reductions

McKINSEY GLOBAL ABATEMENT CURVE