1 Topic 4.c: The Economics of Global Warming Various studies have come out recently: we will look (briefly) at the conclusions of the Stern Report. Stern was commissioned by the UK government to analyse costs and benefits of different abatement strategies. –Released in October 2006 What are the main findings in the Stern Report? If annual emissions stay constant (unlikely without policy), then: –Stock of GHG could double (relative to 1850) by % - 99% chance this will  2° increase in average global temp. –Stock of GHG could treble by At least 50% chance this will  5° increase in average global temp in the following decade. –Effects of a 2° increase are probably large. Effects of 5° increase are hard to even imagine.

2 Topic 4.c: The Economics of Global Warming If we continue with Business As Usual (BAU), effects of climate change will be potentially large and irreversible. –Large benefits from abatement. Stern Report accounts for the possibility of so-called “abrupt climate change.” –By some estimates, this could result in average decreases in GDP in the range of 5-10%. –Some (poorer) countries may suffer losses > 10% of GDP.

3 Also accounts for various other costs of climate change that some studies overlook. –“Non-market effects” (effects on environ, eg. extinctions). Can lead to cost estimates in the range of 5- 11% of GDP (this is a controversial claim). –Tries to account for feedback effects. –Also looks at the idea of weighting effects on poorer countries more heavily than richer countries. An attempt to include distribution considerations. Bottom line: BAU in GHG emissions could reduce GDP per head by 5-20%, depending on assumptions made. Topic 4.c: The Economics of Global Warming

4 Stern also looks at a number of different abatement scenarios, all in terms of GHG concentration. –Focus is on doubling of stock of GHGs (relative to 1850). Means atmospheric concentration of around 550 ppm. Different emissions paths are calculated, each of which achieves 550 ppm, but with different distribution of abatement across time. Costs of abating emissions to achieve 550ppm? –Bottom line for Stern is that the average annual cost will be around 1% of GDP by Conclusion for Stern: Benefits of 550 ppm (avoided damages of 5% or so of GDP) > Costs of abatement (1% of GDP).

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8 Topic 4.c: The Economics of Global Warming Stern’s policy prescriptions focuses on three “essential elements”: –Establishing a global price for carbon. Can be achieved via a carbon tax or through permits. –Policies supporting R&D in abatement technology are key. Achieved in part through carbon pricing, but more is needed. –Removal of “barriers to behavioural change.” For instance, the provision of reliable information to consumers, standards on consumer products etc.

9 Topic 4.c: The Economics of Global Warming Other factors that are important in terms of policy: –Adaptation to climate change. –Fostering of international co-operation. –Distributional effects (to ensure the developing world is on board). So far we have looked at global policy to mitigate the effects of climate change. –Different mechanisms of the Kyoto Protocol (big picture).

10 Topic 4.c: The Economics of Global Warming How is Canada planning on meeting its Kytoto obligations? –Recall: Canada has agreed to reduce GHG emissions to 6% below 1990 levels, by A reduction of about 35% relative to 2004 emissions! Tricky to formulate a national plan due to the division of powers under the Canadian Constitution. Provinces (rather than the Federal governement) essentially have the power to make environmental policy. National/Federal plan to meet Kyoto targets in a state of flux.

11 Source: National Inventory Review

12 Source: National Inventory Review

13 Source: National Inventory Review

14 Source: National Inventory Review

15 Topic 4.c: The Economics of Global Warming National-level Canadian Policy. Original Clean Air Act tabled in October –Contained no mention of Kyoto or Canada’s Kyoto obligations. –No hard caps on GHG emissions reductions until ~ –No emphasis on carbon trading as a way to meet goals. –But somehow imagined GHG emissions would be reduced by 45-65% by 2050.

16 Topic 4.c: The Economics of Global Warming Amended Clean Air and Climate Change Act (2007) –Requires hard caps on industry, beginning in 2008, aimed to reduce GHG emissions to 6% below –Penalties for emissions above target = $20/tonne. –Commitment to global carbon trading. –Also tries to address auto emissions

17 Topic 4.c: The Economics of Global Warming BC Provincial policy: In the provincial Budget of 2008 a Revenue-Neutral Carbon- tax was introduced in British Columbia. The carbon tax applies to virtually all fossil fuels in BC. All carbon tax revenue - about $1.8 billion over three years - will be returned to British Columbians through reductions to income and business taxes. The legislation requires the government to table annually, a plan to ensure the carbon tax remains revenue neutral. To help offset the cost of the carbon tax, lower income households receive a Climate Action Credit of $100 per adult and $30 per child per year. People were encouraged by the government to spend the credit on reducing their carbon footprint

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19 Topic 4.c: The Economics of Global Warming Another important policy document that addresses climate change action in BC is the Energy Plan released in Some of the policies established are: –Zero greenhouse gas emissions from coal fired electricity generation. –All new electricity generation projects will have zero net greenhouse gas emissions. –Zero net greenhouse gas emissions from existing thermal generation power plants by –Set an ambitious target, to acquire 50 per cent of BC Hydro’s incremental resource needs through conservation by –Implement energy efficient building standards by 2010.

20 Topic 4.c: The Economics of Global Warming –Establish a set purchase price for electricity generated from projects up to 10 megawatts. –Establish a $25 million Innovative Clean Energy Fund. This was achieved through the ICE levy in every Hydro Bill. –Eliminate all routine flaring at oil and gas producing wells and production facilites by 2016 with an interim goal to reduce flaring by 50 per cent by –Requirement that 90% of energy comes from clean or renewable sources.

21 Topic 4.c: The Economics of Global Warming Reducing GHG emissions from transportation will be important. –Recall that ~ 40% of BC’s emissions are from this sector. Proposed measures include: –Development of fuel cell and hydrogen infrastructure. –Expansion of tolls on major transport corridors. –Various plans for public transit. –New tailpipe emissions standards for new cars sold in BC.

22 UCS cartoon contest finalist, to vote go to