Greenhouse Gases and Global Climate

1. Greenhouse Gases and Global Climate • Global warming is linked to the accumulation of a variety of gases in the atmosphere. • These gases, which include carbon dioxide, methane, nitrous oxide, and water vapor, trap infrared radiation that would normally escape from the earth’s atmosphere into space. • This increased gas serves to increase the capacity of the atmosphere to absorb heat. • There is virtually no debate about this relationship. • The debate is centers on the magnitude and timing of the change in heat absorption and the significance to human welfare.

2. Carbon Cycle • The carbon cycle refers to the movement of carbon from the atmosphere to the earth’s surface. • Carbon is stored in the biomass of every organism. • Carbon dioxide is also dissolved in surface water, with the oceans playing the largest role. • Carbon dioxide is removed from the earth’s atmosphere when a tree grows. • When an animal eats a plant, the carbon is transferred from the plant to the animal. • When an animal or plant dies, it decays and the carbon combines with oxygen to become carbon dioxide.

3. Kids Crossing, Cycles of the Earth

4. Carbon Cycle • Anthropogenic activities which upset the carbon cycle include burning of fossil fuels or deforestation. • Fossil fuels, such as oil, coal and natural gas, are the fossilized remains of prehistoric plants and animals and represent stored carbon. • Deforestation has two impacts: the breakdown of carbon in the bi-products of the wood and the loss of trees to draw carbon dioxide out of the atmosphere.

5. Carbon Cycle • A process called carbon sequestering involves planting new forests to reduce atmospheric carbon dioxide concentrations. • The greatest opportunity for this is in tropical areas where growth rates are the fastest. • Opportunities also exist in agriculture, carbon can be sequestered in soils and perennial cropping systems

6. Other Greenhouse Gases • Methane comes from a variety of anthropogenic and natural sources. • Natural sources include wetlands and other areas where anaerobic decay of organic matter takes place. • Anthropocentric sources include emissions from cattle and sheep, wet rice cultivation, emissions from coal mines and oil and natural gas wells. • Nitrous oxide originates from the burning of fossil fuels and biomass and also agricultural fertilizers.

7. Is Global Warming Increasing? • Virtually all evidence suggests very strongly that the mean global temperature has increased as a result of anthropogenic greenhouse gas emissions and that it will continue to increase. • All the scientific evidence suggests that there will be significant increases in sea level. • Many uncertainties exist about the nature of regional distribution of global climate change.

8. Twentieth-Century Changes in the Earth’s Atmosphere, Climate, and Biophysical System • Evidence comes from many sources: • Ice core samples of glaciers. • Pollen records from sediments in lakes. • Human records, some historical and some recent and systematic. • Intergovernmental Panel on Climate (IPCC) is an international scientific agency designed to share information and encourage cooperation of scientists, fourth assessment completed --- Nobel Peace Prize

9. IPCC Summary Report

10. What are the Consequences of Global Climate Change? • In the 1990s much of the economic literature focused on the ability to mitigate damages associated with climate change through adaptation (for example protecting Manhattan with a sea wall or switching agriculture to heat-tolerant varieties). • While the US has a complex network of land-grant universities, government agencies and private industries which will work to investigate and implement strategies to address climate change, this is not true for small farmers in developing countries. • In addition, the ability to adapt to change will depend on the magnitude of the change.

11. What are the Consequences of Global Climate Change? • Nordhaus (1991) estimated the annual impact on the US economy of doubling of atmospheric CO2 is approximately $12.63 billion, or 0.26% of national income. • Cline’s estimate (1992) was higher (2% of national income) and included nonmarket impacts. • More recent studies tend to report damages on a per ton of carbon basis, allowing for better comparison with cost of reducing emissions. • Damages from global warming may be even greater, because some types of impacts, in particular, the impacts on ecosystems and the reduction in ecological services, are not factored into global warming.

12. What are the Consequences of Global Climate Change? • One particular aspect of global warming that is likely to be quite costly is the effect of sea-level rise on low-lying Third World countries. • In the future, these areas may be lying entirely under water or at such a low elevation above sea level that they become even more vulnerable to storms. • This may result in a rise in movement of refugees, growing political destabilization and rising costs associated with relocating refugees.

13. What are the Consequences of Global Climate Change? • Ausabel (1991) argues that the most significant damages from global warming may lie in damages to natural systems, particularly those already under stress. • The climate change taking place with global warming is at a relatively rapid pace. This pace is far too rapid for a forest to adjust by natural selection. • Finally, there is the very important impact of global climate change on the distribution of tropical disease.

14. Global Warming Policy • Many characteristics of the global warming problem make it substantially different from other environmental problems. These include: • The need to deal with many different pollutants --- all greenhouse gases • The fact that damages don’t occur at the same time as emissions • Uncertainty in all aspects (benefits and costs of control) • Importance of equity issues, both across generations and across countries • Need to achieve international cooperation ---- no world government

15. The Necessity to Deal with Many Different Pollutants • One cannot merely look at the cost of reducing a kilogram of carbon dioxide emissions and compare it to the cost of reducing a kilogram of N2O. Each greenhouse gas has a different level of radiative forcing (heat absorbing potential), and each has a different atmospheric life. • The IPCC developed a global warming index (GWPI) to measure the equivalency of greenhouse gases. • While a GWPI can measure the warming potential associated with two gases, it does not consider the different time paths and possible different potential long term damages.

16. Policy Situation • Taxes vs. Permits (cap and trade), Aldy • International • Kyoto and possible alternatives • EU Emissions Trading • Harvard Policy International alternatives ppt • Current Climate Negotiations: UN Climate Change Conference in Bali, where to from here?

17. Emissions Taxes for GHGs (Primer by Joe Aldy) • Financial incentive of some form is needed to curb CO2 emissions • Cap and trade (permits) or a tax are the two most realistic choices • Focus of this piece is to explain how a tax could be structured, also provides some nice comparisons between tax and permits • One approach is an “Upstream tax” where energy producers would pay a tax based on CO2 content of the fuels they sell

18. Emissions Taxes for GHGs (Primer by Joe Aldy) • Fees on natural gas, petroleum products, and coal would all be different based on their carbon content • Such ‘upstream” fees would could cover more than 98% of CO2 emissions through relatively small number of firms (~2500) • This means such a tax would be administratively straightforward – just like an excise tax that many fuel suppliers already pay • Aside: downstream tax is a tax on all products based on their usage of carbon inputs, Aldy doesn’t discuss

19. Emissions Taxes for GHGs (Primer by Joe Aldy) • What will happen to cost of energy and products that use energy? • They will increase, and the costs will get passed on through the energy system • Incentives for alternative fuels will be created • Incentives to find lower energy approaches to production of all things will be created • Emission taxes would generate lots of money for the government

20. Emissions Taxes for GHGs (Primer by Joe Aldy) • Example of an tax schedule (source not cited) Year Tax rateEst. CO2 decline 2015 $15/ton CO2 5% 2020 $20/ton CO2 9% 2030 $50/ton CO2 29% • Revenues from such a tax would be substantial, $95 billion in 2015 alone, what could be done with those?

21. Emissions Taxes for GHGs (Primer by Joe Aldy) • Tax revenues could be spent on • Lowering other taxes (reduce income tax, etc.) • Paying off federal debt • R&D on alternative energies • Medicare, social security, etc. • Stupid wasteful things, government inefficiency etc. • Lowering other taxes that are distortionary (such as income taxes) could really benefit the economy

22. Emissions Taxes for GHGs (Primer by Joe Aldy) • Sequestration could be included in such a program, a firm that captured and stored C could generate credits and sell them to another firm in lieu of their fees • If this starts to sound like a permit system, you are right, it starts to be a hybrid, a true tax system would pay a negative tax to sequestration

23. Emissions Taxes for GHGs (Primer by Joe Aldy) • Comparing a tax to cap-and-trade 1. How will they compare in terms of costs to consumers? If permits are given out free, won’t firms hold the line on prices and not pass on costs? • Nope. Firms will consider the opportunity costs of those permits, what they could sell them for rather than use them, in their pricing. • There will be differences in the distribution of cost increases depending on whether permits are free or must be purchased by firms

24. Emissions Taxes for GHGs (Primer by Joe Aldy) • Comparing a tax to cap-and-trade 2. How does a cap-and-trade compare to a tax in terms of tax revenues? Depends on whether some or all of the permits are auctioned or sold and at what price 3. How do they compare in terms of certainty? • Aldy points out that a tax provides a certain cost, if there are changes in firms’ economic conditions from year to year, they can vary how much they purchase vs how much they pollute • Since it’s the total amount of GHGs in the atmosphere that matter, if there are more than average emitted in one year, that’s ok, as long as they are offset in future years.

25. European Union Emission Trading Scheme (Wikipedia) • Largest multi-national, emissions trading program in the world • Major component of EU climate policy • Phase I covers more than 10,000 plants, factories, etc • Covers about half of the EU's emissions of CO2 and 40% of its total greenhouse gas emissions

26. European Union Emission Trading Scheme • large emitters must monitor and annually report their CO2 emissions, must have permits to cover their emissions • Emitters get the allowances for free from the government (initially), • then may purchase them from others (installations, traders, the government.) or can sell if they have more than they need

27. European Union Emission Trading Scheme • Trades can occur by: • privately, moving allowances between operators within a company and across national borders • Using a broker or over the counter to privately match buyers and sellers • trading on the spot market of one of Europe's climate exchanges (e.g., European Climate Exchange).

28. European Union Emission Trading Scheme • Phase I: 2005-2007 ----- practice • first year, 362 million tonnes of CO2 were traded on the market for a sum of €7.2 billion, • price of allowances hit its peak level in April 2006 of about €30 per tonne CO2, • fell in May 2006 to under €10/ton when countries indicated large emission caps – so there was no need for them to reduce emissions. • trading price of €1.2 a tonne in March 2007, declining to €0.10 in September 2007. • Prices currently low – can check climate exchange yourself

29. European Union Emission Trading Scheme • Phase II: 2008-2021 ---- first Kyoto requirements • scope expanded: • Clean Development Mechanism and Joint Implementation Credits • Aviation emissions included from 2010 • Four non-EU members, Norway, Iceland, Liechtenstein and Switzerland

30. European Union Emission Trading Scheme • In January 2008, the European Commission proposed changes • centralized allocation (no more national allocation plans), • auctioning a greater share (60+ %) of permits rather than allocating freely, • inclusion of the greenhouse gases nitrous oxide and perfluorocarbons. • Also, revising caps foresee for an overall reduction of greenhouse gases of 21% in 2020 compared to 2005 emissions.

32. US: Chicago Climate Exchange • “CCX is a self-regulatory exchange that administers a voluntary, legally binding pilot program for reducing and trading greenhouse gas (GHG) emissions in North America, with participation of Offset Providers from Brazil” • How does it work? • CCX members commit to reduce GHG emissions 1% per year over the years 2003 through 2006 (1998 -2001 average) • Members that reduce their emissions below the required level can sell surplus emission allowances on the exchange or bank them. • A member that cannot achieve the reduction target internally can meet its compliance commitment by purchasing emission allowances through CCX’s electronic trading platform or purchase project-based offsets. • Eligible offsets can come from methane collection and carbon sequestration projects. • Why does anyone join? • Value of being a “green” firm • Costs pretty low, ~$2 ton • Learning, early mover advantage,….

33. Iowa Farm Bureau • Exchange Soil Offsets (XSOs) • Commit to 4 years conservation till or grass • Annual certification by IFB • Price paid from going rate on CCX, less 10% aggregator fee • Goal of 100,000 acres • Also aggregating Exchange Methane Offsets and Exchange Forestry Offsets

34. Harvard Project powerpoints

35. UN Climate Change Conference, Bali, 2007 : Summary from Stavins and Aldy, • The conference was a "qualified success." • Before Bali, we observed that it will be good news if there's no bad news coming out of the negotiations.  This was achieved, and then some. • For the Bali Roadmap, countries agreed to continue working together, and they have agreed on certain measures. • The ultimate destination was not decided.  That was not feasible and was not necessary. • But the direction was decided and the vehicle for travel was augmented in positive ways

36. UN Climate Change Conference, Bali, 2007 : Key Takeaways Stavins and Aldy, • Specified intent to complete negotiations on post-2012 plan by the end of 2009.  • The Intergovernmental Panel on Climate Change's fourth assessment report was recognized as the authoritative report on the science of climate change. • A shared vision for long-term action, including a long-term emission reduction goal, will be addressed through the Bali action plan process. • All developed countries are expected to undertake mitigation commitments or actions, including quantified emission targets. • Developing countries, for the first time, offered to include "mitigation actions" in the next international agreement.  It is not clear yet what these plans of action will be, and to what extent they will depend upon prior actions in the industrialized world, but this is a step in the right direction. • Work will commence on methods to demonstrate emissions reductions from retarded deforestation and design policy incentives for reducing emissions from deforestation and land degradation.  (Deforestation — from a range of countries, including Brazil and the Congo — accounts for roughly 20 percent of greenhouse emissions.) • Adaptation is now getting much more attention. The Bali plan calls for efforts to assess the vulnerability of low-income countries, develop capacity, promote risk management and risk reduction efforts, and facilitate resilience through economic diversification. • Work will commence on a program for technology transfer to developing countries as well as cooperation on the research and development of new climate-friendly technologies.