James L. Plummer, MBA, Ph.D. President, QED Research IAEE Founder

1. OVERSELLING CARBON DIOXIDE REDUCTION STRATEGIES FOR GLOBAL WARMINGPresentation for June 2011 IAEE International Conference in Stockholm, Sweden James L. Plummer, MBA, Ph.D. President, QED Research IAEE Founder

2. RECENT DECLINE IN THE WORLDWIDE CARBON DIOXIDE REDUCTION APPROACH • The “Kyoto approach” is alive in name only • The U.S. Congress is unlikely to revisit any “cap and trade” proposal in the next decade. It is recognized to have “too many moving parts.” • If there is both a Democratic President and Congress, they might try a low level emissions tax, more for revenue motivations • The EU ETS has inadequate coverage and will generate too much political scandal and conflict • The Copenhagen and Cancun conferences achieved very little • There has not been significant global warming since 1998 • If there isn’t significant global warming in the next few years, the IPCC and the global warming issue may fade away

3. 7 impossible things you have to believe in order for more carbon dioxide modeling to be useful for policymakers • That a “low level stabilization” CO2 target is a sufficient basis for policy analysis • AND there is a sufficient knowledge of the relationship between temperature changes and probability of abrupt climate change • AND one can ignore the difference in costs between carbon taxes or carbon trading and other very wasteful anti-carbon policies • AND one can waive away the use of very low discount rates by introducing equity considerations into an efficiency analysis • AND carbon dioxide reductions should take precedence over other uses of public capital that have higher benefit/cost ratios • AND China, India and Brazil will, even with delays, accept participation in a system that is contrary to their economic self-interest • AND that voters in key OECD countries, especially the U.S., will accept costs of 2-3% of GDP without knowing the detailed impacts on regions, sectors, and trade balances

4. SHORTER LEAD TIME OPTIONS (SLTs) AND LIMITED REGRET STRATEGIES • In decision analysis, options that have shorter lead times have advantages over options that have longer lead times: • The ability to make mid-course corrections, based upon changing information • A “limited regret strategy” is one that focuses on avoiding outcomes that have the highest negative values • In climate policy, carbon dioxide reduction strategies seem to have the worst characteristics: • A capital project to reduce carbon dioxide typically has very small annual net benefits over a very long project lifetime • The upfront commitment of capital may preclude later expenditure on SLTs that can have higher lifetime benefit/cost ratios

5. SOME SLTs FOR GLOBAL WARMING Adaptation options, especially ones that focus on abrupt climate change Carbon capture and sequestration options Ocean absorption options Forestry and urban greenery options Climate engineering options

6. “DISCOUNTED DAMAGE VALUATION” OF GLOBAL WARMING POLLUTANTS • Most of the “modeling” of global warming options has been done without detailed specification of climate change damage functions. The “objective” is an arbitrary CO2 target. • Both Eckaus and Schmalense proposed in the 90s that global warming pollutants be valued by their economic damages • The FUND model (Tol and many collaborators) is an exceptions to the usual ignoring of damage valuation. DICE (Nordhaus) tries, but its specifications are far less comprehensive. • Based on older and incomplete modeling, Tol believed that the discounted damage from CO2 would be in the range of $3-5/ton • Tol and his team are now doing new modeling that may provide the basis for a discounted damage valuation for all global warming pollutants

7. BLACK CARBON MAY BE THE ECONOMICALLY MOST IMPORTANT GLOBAL WARMING POLLUTANT • Black carbon is an aerosol rather than a GHG • Its atmospheric residence time is from a few days to a few weeks • The sources are diesel engines in trucks and ships, airplanes, and billions of cook stoves in LDCs • Its deposition on snow and ice can cause increased solar absorption and warming • It may be responsible for 25% of the total radiative forcing

8. CARBON DIOXIDE REDUCTION INSURANCE IS PROBABLY NOT THE MOST IMPORANT FORM OF GLOBAL WARMING INSURANCE • In a Monty Python movie, a customer calls his insurance company to make a claim. The claims representative says “I see you bought the ‘no claim policy.’ Under that policy, filing a claim invalidates the policy.” • Carbon dioxide reduction insurance is a global warming insurance policy that provides a teeny weeny little bit of insurance each year over a 100 year policy life. That is why using any discount rate above 1% causes the modelers to get negative discounted net benefits. • Use of SLTs can provide options in which the annual discounted benefits will be larger relative to the discounted costs

9. POTENTIAL USE OF CONTINGENT LIABILITY FEES (CLFs) • Emitters would incur a contingent liability of X dollars payable only if and when the atmospheric temperature exceeded Y degrees centigrade by Z future date. • If the “trigger” was pulled, the money would be paid into a governmentally administered discretionary fund for implementation of SLTs. Obviously, there would also need to be a “release” mechanism. • The same law might provide for indemnification for some of the actors in implementation of SLTs • This approach is somewhat similar to present U.S. laws for nuclear plant insurance, oil spills and clean up of toxic waste sites

10. CLF ISSUES FOR ANALYSIS BY ENERGY ECONOMISTS • Alternative triggers and release mechanisms • Multiple CLFs? • Modeling of the pricing of the private insurance bond market that would inevitably be created • Use of CLFs to respond to Weitzman’s “fat tail uncertainty” scenarios • Combining CLFs with emission taxes? • Limiting (or not) the scope of the use of the funds if the trigger was pulled • Potential international coalitions using CLFs (the Arctic Council?)

11. ARGUMENTS AGAINST CLFs • It might be difficult to get Congress to really “set and forget” the CLFs: • Congress would probably insist on reauthorizing and appropriating the funds after the trigger was pulled. By itself, that would not be a big problem. • As the CLFs accumulated, outside of government control, there would be a temptation for Congress to “raid” those funds for some climate related purpose, or for general revenue. • There would be continual lobbying of Congress to change the definition of the trigger, or the trigger release, or to add other climate triggers or trigger releases. • The price of CLF bonds wouldn’t really be a “market measure” of the probability of the temperature trigger being pulled if political realists didn’t believe that, when it really came to it, that Congress would allow the trigger to be pulled. That could result in a “cynicism discount” to be embodied in the market price of the CLF bonds. • If CLFs accumulated for a long period, the amount of money could become large enough to have macroeconomic implications. Even though the money would be paid by insurance companies, some economic players might regard that payment as a sudden governmental lump sum tax. • If the primary objective of using CLFs is to increase the resources and attention for SLTs, there may be more direct ways of accomplishing that.

12. WHAT POLITICAL PLAYERS MIGHT LIKE THE CLFs? Even “skeptics” or “lukewarmers” might like CLFs as a defensive strategy to preempt the passage of much more wasteful carbon dioxide reduction legislation. Some global warming “true believers” or “alarmists” might like it if it was the only alternative to doing nothing. It might be regarded as “a way to get started.” They might want a CLF be combined with some emission taxes, even at a low level. One group could be counted on to vigorously oppose CLFs—the members of the “green lobby” that have been quite successful at getting Congress and state legislatures to enact subsidies and RRPS (Renewable Resource Portfolio Standards) based partly on carbon dioxide reduction.

13. IMPLICATIONS FOR ALLOCATIONS OF R&D FUNDING • It wouldn’t make much sense to enact CLFs, if the SLTs were not developed to the point where they could be implemented if the trigger was pulled. • So, increased R&D allocation to SLTs in the pre-trigger years would be both a necessity and one of the primary benefits of using the CLF system. • This pressure would create a permanent political war with those that wish to lavish most of the energy R&D budget on “green technologies.” • I don’t regard that political warfare as necessarily a bad thing. In the present state of political play, the “green lobby” usually wins by default. Creating a counter-lobby group for SLTs would be a welcome development.