Fourth Annual Conference on Global Economic Analysis Policy Panel I: Climate Change Policy

1. Fourth Annual Conference on Global Economic AnalysisPolicy Panel I: Climate Change Policy • Some Research Issues • June 27, 2001 Larry Williams EPRI

2. Overview • The easy stuff • Climate science • Policy proposals • Basic observations • Open questions • Two studies underway through EMF-Stanford • International policy process in flux • Opportunity to rethink the issue • Introduce imperfections of real world • Uncertainty analysis

3. Climate science • The issue is real—won’t be going away • First signs of human-caused climate change have likely occurred • Further change appears inevitable • Time scale is very long term • Not the next election cycle! • Less certain about… • Where (regions of globe) • When (rate of change) • How much (magnitude)

4. UN Framework Conventionon Climate Change • Ultimate goal is the stabilization of greenhouse gas concentrations in the atmosphere • Initially called upon Annex I countries to take lead and aim to return emissions to 1990 levels by 2000 • Calls for periodic reviews

5. Basic Observations • The Framework Convention deals with concentrations and NOT emissions • Timing matters—a gradual energy transition will be cheaper than an abrupt transition • Stabilization requires participation by the big emitters • Net emissions need to go to ZERO eventually • Solution requires a portfolio of actions • No single magic solution • Problem is real and will NOT go away on it’s own

6. Policy Directions…? • Kyoto Protocol as written (US inside) • KyotoEU + Japan + Russia (US outside) • Renew Negotiations • Revisit Kyoto ? • Revisit Rio ? • Individual Nations take actions • Bilateral agreements • Permit trading slowly takes hold • Eventual convergence • Europe as laboratory experiment for GHG control

7. Failure to agree at COP6 opens upresearch possibilities… • Most recent climate policy research organized relative to the Kyoto Protocol • Now is a good time to take broader focus • Rethink global problems related to • Development, air and water pollution (and water scarcity) AND • Climate jointly • Stay tuned—new policies will be surfacing

8. Research possibilities… • “International Trade Dimensions of Climate Policy Analysis” • EMF18 (Stanford University) study underway to examine leakage effects and spill-over effects • “Technology Strategies for Greenhouse Gas Mitigation” • EMF19 (Stanford University) study examines • Alternative sets of technology assumptions and ways to represent technological progress • Strong impact on cost estimates

9. Research possibilities… • Real policy implementations unlikely to be optimal • How much more costly will non-optimal be? • Various forms of command and control • Sector specific caps • Upstream vs. downstream • Various domestic burden sharing schemes • How will lack of harmony between domestic and international policies affect the costs?

10. Research possibilities… • More work on uncertainty analysis is needed • What are key uncertainties influencing future emissions • Examine climate issue as risk management • Climate surprises • Action vs. inaction • Sequential policy proposals • Prudent risk management strategy