Glacial melt on Mt. Hood in Oregon is visible in these photos from August 1984 (above) and September 2006 (below). At the center is Sandy Glacier, which has lost 40 percent of its size since 1911, according to local glaciologists. Photograph by Gary Braasch.
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Worldwide,
there is a growing consensus that strong action is needed to reduce
carbon emissions. European Union (EU) governments have begun large-scale
policy initiatives to do so; the United States lags behind but has
finally begun a serious debate about proposals for climate legislation.
Yet at their best, both EU and proposed U.S. policies would contain CO2
concentrations at about 450 parts per million (ppm), which until
recently was considered a "safe" level but which many scientists now
believe would still result in substantial, costly climate changes. Even a
target of 450 ppm is viewed by many economists as too ambitious and
potentially damaging to the economy.
Economists for Equity and Environment, a group dedicated to applying
and developing economic principles to protect human health and the
environment, conducted a study last year titled The Economics of 350.1
None of the scenarios from credible research that were examined found
that moving toward a goal of 350 ppm would cost, at its peak, more than 5
percent of global GDP, and the long-term average cost of achieving 350
ppm is more likely to be between 1 and 3 percent per year.
Let's examine, for example, spending the equivalent of 2.5 percent of
GDP, roughly the rate at which developed countries' economies grow each
year, on climate protection. That would be equivalent to skipping one
year's growth and then resuming. Average incomes in the United States
would take 29 years to double from today's level, compared to 28 years
in the absence of climate protection costs. In an economy experiencing
10 percent annual growth, as China has in many recent years, imposing a
cost of 2.5 percent per year is equivalent to skipping three months of
growth; if 10 percent growth is sustained, average incomes would reach
double the current level in 86 months, compared to 83 months in the
absence of climate protection costs.
Or consider this: In 68 countries, military spending is greater than
2.5 percent of GDP. In both the United States and China, military
expenditures exceed 4 percent of GDP. Military spending in France and
India, among many other countries, is at or above 2.5 percent of GDP.
Around the world, people willingly spend very large sums to protect
themselves against perceived threats to their way of life. Catastrophic
climate change is just such a threat.
Inaction is the most expensive scenario. Scientific research
continues to yield evidence that climate change is occurring faster, and
its consequences could be more severe, than previously expected. We
need a big initiative, a comprehensive global deal on protecting the
Earth's climate by rapidly reducing emissions of greenhouse gases.
Reaching 350 ppm: Challenges and Possibilities
How do we arrive at 350 ppm? The first step is to decide how soon to
get there. James Hansen, NASA's top climate scientist, has argued that
paleoclimatic evidence shows that 450 ppm is the threshold for
transition to an ice-free Earth, with catastrophic sea-level rise and
extensive flooding. Since the world is already at 390 ppm and rising,
Hansen believes aggressive action is needed to get down to 350 ppm by
2100.2
In Hansen's scenario, coal burning would be phased out by 2030, or
else technology would have to be developed to capture and store 100
percent of emissions from it. Oil and gas use would fade out on their
own, presuming the Intergovernmental Panel on Climate Change's estimates
of reserves are correct; these fuels can be used as their market prices
allow (assuming, as economic theory suggests, that prices will increase
as reserves shrink, until and unless nonfossil energy sources are
developed).
But Hansen doesn't want to just control emissions; he wants to aim
for negative net carbon emissions by midcentury (i.e., removing more
carbon from the atmosphere than is emitted). To do that, he has proposed
large-scale reforestation and biochar initiatives, with land-use
emissions hitting zero as soon as 2015 and massive sequestration of
carbon in forests and soils outweighing global emissions within a few
decades. Because that ambitious approach might be deemed too demanding,
we considered an alternative: aiming to reach 350 ppm by 2200. In that
scenario, the world would not have to achieve negative net emissions,
although it would have to quickly approach zero. The different
trajectories could have important, though highly uncertain, implications
for peak temperature changes: the peak temperature change from 1990 is 1
°C in 2050 in Hansen's scenario, compared to a peak change of 1.5 °C in
the 350 ppm by 2200 scenario.
Mt. Hood in September 2006. Photograph by Gary Braasch.
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Note that both scenarios assume success, within this century, in the
vast undertaking of converting the world energy system to carbon-free or
low-carbon sources such as wind, solar, geothermal, hydro, nuclear, and
biomass-fueled power. This is the first and foremost challenge for
climate policy, the essential hurdle that must be overcome. But it is
not all that is needed, especially if we set out to reach 350 ppm of CO2
by the end of this century.
Both scenarios have very similar emissions through 2020. Then, within
a few decades, Hansen's assumptions of complete carbon capture from
coal and large CO2 withdrawals from land-use changes make yearly
emissions in that scenario negative, and the stock of atmospheric CO2
begins to decrease over time.
Our scenario, which represents the most ambitious schedule we can
imagine without assuming the technical, political, and institutional
changes necessary for achieving negative emissions, would reduce
emissions to 54 percent of the 1990 level by 2020 and to 3 percent by
2050. The conversion to renewable energy systems would have to be
complete and the world economy would have to be virtually free of carbon
emissions by midcentury, a more demanding goal than any of the leading
policy proposals under discussion today. To achieve 350 ppm before 2200
without net negative emissions in any year, global emissions would have
to be reduced even faster.
Carbon Removal
The ability to remove CO2 from the atmosphere at this point is fairly
limited. There are, however, three widely discussed methods of carbon
removal, of which the first two (reforestation and biochar) are
currently available and the third (biomass burning with carbon capture
and storage) is still under development.
Reforestation (and the prevention of deforestation) is a key,
low-cost component of any strategy for removing carbon from the
atmosphere. Forests play a critical role in the global carbon cycle,
absorbing CO2 emissions from the atmosphere and storing carbon long term
in woody biomass and soil. Hansen's plan assumes that the world can
sequester 5.9 gigatons (Gt) of CO2 annually through reforestation
starting in 2030, an amount roughly equivalent to annual U.S.
energy-related CO2 emissions in 2008. Other estimates of the technical
potential for sequestering carbon emissions range from 20 to 110 Gt of
CO2 annually.1
Much of the potential for emissions reduction through forestry is
found in the developing world, where forest conservation and
reforestation initiatives would compete against alternative land uses,
including logging and commercial and subsistence agriculture. Bottom-up
estimates of forestry mitigation potential in developing countries
suggest that much of these reductions are available for less than $15
per ton of CO2.1
The search for low-cost global opportunities for mitigation
repeatedly leads to a focus on tropical forest management. Nicholas
Stern, the economist who wrote the influential Stern Review on the Economics of Climate Change
for the British government, released in 2009 a "blueprint" for a new
global deal on climate change, calling for spending $15 billion per year
to combat deforestation in tropical countries; he estimates that this
would buy 3 Gt per year of reduction at an average cost of $5 per ton of
CO2 equivalents (CO2-e). (Concentrations of all gases are typically
expressed in CO2-e—the amount of CO2 alone that would have the same
warming potential as the full range of greenhouse gases in the
atmosphere. Because of the importance of methane and other gases, 350
ppm of CO2 alone roughly corresponds to 450 ppm of CO2-e, that is, of
all greenhouse gases combined.)
Heavily forested developing countries should not bear the financial
burden of these reductions. New international agreements, institutional
structures, and financing arrangements are necessary to facilitate
payment to developing countries and to ensure the legitimacy of these
reductions.
A second effort to remove carbon is biochar, a relatively obscure
technology that is getting more and more attention. The technology
involves slowly burning plant material into a form of charcoal and then
burying it in the soil; that process sequesters carbon and may have
beneficial effects on soil productivity and water retention. However,
while appealing, biochar is unlikely to play a major role in reducing
emissions in the coming decades. Hansen estimates that 0.6 Gt of CO2 can
be sequestered annually via biochar.
Biomass and Carbon Capture and Storage
A related prospect is using biomass—including sugar cane,
switchgrass, corn (maize), palm oil, and carbon-rich waste products from
the paper and agricultural industries—as a fuel, burning it to generate
electricity or heat. The use of biomass as a fuel is typically
described as carbon neutral: the CO2 emissions released in combustion
are balanced by the CO2 removed from the atmosphere by the growth of the
plant material.
For biomass crops, especially those grown in an industrial
agricultural setting, this equation is more complex—emissions removed in
plant growth still equal emissions released in combustion, but biomass
farming is also responsible for emissions caused by tractors and other
farm equipment, by the production of pesticides and fertilizers, and in
some cases by land-use changes, as when forest is converted to
agricultural land for the purpose of biomass farming.
To use biomass energy as a tool to reduce net greenhouse gas
emissions, a second step is necessary: biomass power plants must be
combined with carbon capture and storage. The full life cycle of biomass
energy production with carbon capture and storage would absorb carbon
in plant material, burn that material to make energy (thereby avoiding
greenhouse gas emissions from fossil fuels), and then capture the
resulting CO2 emissions and store them underground.
Carbon capture and storage stops greenhouse gas emissions by trapping
CO2 from power plants and storing it indefinitely. If the process could
be developed on a commercial scale, it could be used for more than
biomass plants; it could also allow continuing use of coal-fired
generation while still reducing emissions. Without carbon capture and
storage, it is difficult to fit large-scale use of coal into scenarios
for rapid emissions reduction. This potential for "redeeming" coal may
account for some of the current interest in the strategy. Full-scale
industrial carbon capture and storage, however, may not be commercially
viable for some time to come.
In the meantime, experimental programs are testing a few carbon
capture and storage technologies: pre-combustion carbon capture and
storage removes carbon from fossil fuels before combustion, often
through coal gasification. Post-combustion carbon capture and storage
removes carbon from power plant smokestacks before it can enter the
atmosphere. And oxyfuel carbon capture and storage burns fuels in a pure
oxygen atmosphere, which limits smokestack effluent to just water vapor
and CO2; cooling the smokestack gas is sufficient to separate the two
into liquid water and gaseous CO2.
CO2 storage options are the same for all three capture processes. CO2
must be transported to the site of storage and injected 800 meters or
more into the ground. Beneath the soil, CO2 may mix with groundwater to
form a fizzy seltzer or may become trapped underneath rock formations.
Potential storage sites include former oil and gas fields and deep
aquifers.
Carbon capture and storage may not win the race to demonstrate that
carbon can be economically removed from the atmosphere; numerous other
inventions and proposals are beginning to appear. For example, recent
scientific efforts to extract CO2 directly from the air have attracted
the attention of investment capital. It is important to keep developing
new technology—but at the same time, public policy cannot wait for or
count on technologies that are still in the works. It is certainly
possible to imagine some other means of mopping up unwanted CO2
emissions—the matter transmitters of Star Trek would no doubt
do the job. Yet unless science fiction becomes reality, achieving net
negative emissions will remain an enormous challenge.
Costs of Emissions Reduction: Five Examples from across the Globe
At least five research groups—four academic research teams publishing
in peer-reviewed journals and one well-known consulting firm—have
modeled global scenarios that lead to 350 ppm of CO2. These scenarios
impose only moderate reductions in GDP—and one of them found that new
climate investments might accelerate economic growth, creating new jobs
for the unemployed. (Many research studies model emissions and impacts
of all greenhouse gases, not just CO2. We have limited our attention to
CO2 to highlight key numbers of current policy interest.)
Scenario 1
The first report we consider is by Detlef van Vuuren, Michel den
Elzen, and others at the Netherlands Environmental Assessment Agency
(MNP).3 Their scenario relies initially on energy efficiency
and on reduction of non-CO2 greenhouse gases. These measures are low
cost, but their potential is soon reached. By midcentury, the model
relies on carbon capture and storage (applied to virtually all remaining
coal use), expanded sequestration (especially in large carbon
plantations in East Asia, South America, and the former Soviet Union),
bioenergy production, and some expansion of the roles of both non-hydro
renewable and nuclear power (hydropower is assumed to be at or near its
maximum potential).
Further reductions in later years depend on changes in energy use. In
the second half of this century, the authors project that hydrogen fuel
cells will become affordable, reducing emissions in transportation at
moderate cost. Carbon prices will rise steeply, but most emissions will
be eliminated long before prices reach their peak (electricity is
virtually decarbonized at "only" $55–$82 per ton of CO2 equivalents. By
the end of this century, they estimate that fossil fuel use will be
virtually eliminated (the small continuing uses will be for electricity
production associated with carbon capture and storage), and biomass
energy production with carbon capture and storage will remove large
amounts of carbon from the atmosphere.
The cost of the scenario peaks at about 2 percent of world output at
midcentury. Analysis of the regional impacts of this scenario finds that
costs would be high for the Middle East and North Africa and the former
Soviet Union, the regions most dependent on oil and gas production.
Member countries of the Organisation for Economic Co-operation and
Development (OECD) would experience medium costs, while other regions
would have lower costs or even gains. Nations that rely most heavily on
oil and gas revenues would stand to lose under a global climate deal—a
pattern of regional impacts that has been confirmed in other research as
well.4
Scenario 2
The GET model, developed by Christian Azar and Kristian Lindgren at
Chalmers University in Sweden, has also been used to project the costs
of reaching 350 ppm of CO2 by 2100.5 It presumes that, by
midcentury, nuclear and hydroelectric power are already at their maximum
potential, and it limits wind and solar power to 30 percent of
electricity demand due to intermittency. Oil as the dominant
transportation fuel is eventually replaced by hydrogen, with solar
energy used to produce it. Carbon capture and storage is vitally
important in this model, shrinking the cumulative cost of mitigation
over this century from $26 trillion to $6 trillion when carbon capture
and storage is applied to both fossil and biomass energy.
In this model, costs peak at 5 percent of GDP in 2030 without carbon
capture and storage—or at 3 percent of GDP in the 2070–2080 period with
it. In the 350 ppm with carbon capture and storage scenario, coal use is
roughly constant throughout the century, but carbon capture and storage
enters around 2020 and applies to virtually all coal use by 2060. Solar
hydrogen appears around 2060 and is the largest source of energy in the
global system by 2100. Biomass rises in importance until about 2060 and
then remains constant; carbon capture and storage is applied to biomass
energy starting around 2050 and applies to almost all remaining fossil
energy by 2100. Oil declines rapidly after 2040; natural gas remains
important until near the end of the century but with increasing use of
carbon capture and storage after 2050.
Scenario 3
Another analysis, conducted by Terry Barker and Katie Jenkins at the
Cambridge Centre for Climate Change Mitigation Research (4CMR), at
Cambridge University, projects that in a global economy characterized by
slow growth and high unemployment, a program of investment in emissions
reduction will increase employment and economic growth at a cost of
between 2 to 3 percent of GDP by 2030, achieving 450 ppm of CO2-e by
2100.6
This study, which is less explicit about specific technology choices,
suggests that moderate-to-high carbon taxes could shift the electricity
system to low-carbon options, including coal and gas with carbon
capture and storage, renewable resources, and nuclear power. Taxes could
also propel the wholesale adoption of electric cars by 2050.
Scenario 4
Ottmar Edenhofer and his colleagues at the Potsdam Institute for
Climate Change Research (PIK) have also engaged in extensive studies of
low stabilization targets. In a major EU research project, these
researchers compared the projections of four different models for the
costs of achieving stabilization targets from 400 to 550 ppm of CO2-e.7
One model projects economic gains from the investments in mitigation;
the three others, from different research groups, make relatively
consistent projections, showing cumulative GDP losses through 2100 of
1.7 percent or less, even for the 400 ppm of CO2-e target (which is
equivalent to about 300 ppm of CO2). Biomass and carbon capture and
storage assumptions are crucial to costs everywhere; in contrast,
nuclear power plays only a minor role. The lowest stabilization
scenarios also require expansion of non-biomass renewables, with the
level of biomass use determining the level of mitigation costs.
Scenario 5
McKinsey & Company, an international consulting firm, has looked
at the cost of greenhouse gas abatement from the bottom up, most
recently in a study that examined the potential and the costs of more
than 200 abatement opportunities from now through 2030.8 The study found
that there is the technical potential to reduce global emissions 35
percent below 1990 levels, or 70 percent below business as usual, by
2030—if all measures with costs below $84 per ton of CO2-e are adopted.
The total investment would be $280 billion to $490 billion annually by
2030, or less than 1 percent of global GDP in that year, on a
stabilization trajectory that reaches 450 ppm of CO2-e (350 ppm of CO2)
by 2200.
The McKinsey study's projected emissions reductions consist of three
roughly equal categories: energy-efficiency opportunities, such as more
fuel-efficient cars, better insulated buildings, and more advanced
manufacturing controls; low-carbon energy supply, shifting from fossil
fuels to wind, nuclear, or hydro power, as well as equipping fossil fuel
plants with carbon capture and storage capability; and forestry and
agriculture changes, such as halting deforestation, switching to rapid
reforestation, and changing agricultural practices to increase carbon
sequestration in soils.
In addition to identifying the substantial opportunities for
negative-cost emissions reductions (many of them from energy
efficiency), the McKinsey research also points out that the cost
estimates are sensitive to the price of oil. As the price of oil rises,
the costs of investment in emissions reduction are largely unchanged,
but the value of the saved energy increases, implying a lower net cost.
The basic forecast assumes an oil price of $60 per barrel; every $10 per
barrel increase, if accompanied by proportional increases in other
energy prices, cuts average abatement costs by $4 per ton of CO2-e.
Although the report does not spell it out in these terms, this formula
implies that at an oil price of $90 per barrel, the entire emissions
reduction of 38 gigatons of CO2-e would have zero net cost.
Many of the model results discussed here express costs as percentages
of GDP, a measure that is natural to economists but may seem opaque to
other readers. Most scenarios put the cost of mitigation at between 1
and 3 percent of global GDP—in 2008 terms, that's somewhere between $600
billion and $1.8 trillion. This would be an annual, recurring cost that
will have to be paid for many years. Yet as we noted at the beginning,
this is far from an impossible burden.
Conclusions and Recommendations
Our most important conclusion is that a 350 ppm stabilization target
will not destroy the economy. On the contrary: we found widespread
agreement that sound economic analysis supports policies to promote
energy conservation, development of new energy technologies, and price
incentives and other economic measures to redirect the world economy
onto a low-carbon path to sustainability—at entirely affordable costs.
Agreement with this conclusion, of course, is not universal. At one
extreme, business groups warn that moderate reductions called for in
recent U.S. legislation would cripple the economy—and some economists,
quite mistakenly in our view, worry more about the costs of climate
policy than about the risks of climate damages.1 At the other
extreme, some environmental groups anticipate "win-win" economic
outcomes and large net savings from eliminating carbon emissions. But
between these extremes is a growing body of research that finds that
even very ambitious emissions reductions aimed at reaching 350 ppm might
only cost 1–3 percent of world output.
Is the estimated cost of a global climate change strategy of 1–3 percent of world GDP a large or a small number?
The answer depends on how seriously you take the risks of climate
change. If we believe that inaction could lead to massive ice sheet
melting, flooding in some areas and droughts in others, crop failures,
extinctions, and other disasters, then spending a few percent of output
to protect ourselves and our descendants against so much harm seems
reasonable. In private life, many people spend a few percent of their
income on fire and life insurance to protect against unlikely disasters,
such as residential fires or the deaths of young parents. In public
life, climate protection is insurance for the planet and future
generations.
The low price of fossil fuels in the United States skews the
discussion by masking the true costs of our energy use. We recommend
putting a price on carbon, either as a tax or through a cap on
emissions; a cap would likely be adopted as part of an allowance or
emissions permit system. There is ongoing debate about the merits of
auctioning allowances each year, the approach we prefer, versus freely
allocating them to potentially affected business and other interests,
the approach that has often been favored in Congress. These approaches
have very different effects on the distribution of income but could have
the same effect on the price of carbon.
It is preferable for the high fuel price to be imposed by a tax or
cap rather than by private markets, even if the effect on consumers is
the same. When market forces push up the price of oil, as they did in
2008, the extra revenues go to oil producers, not to the public. When
oil prices remain high, incentives are created for environmentally
destructive production of energy—from oil shale, oil sands, and
increasingly deep, dangerous offshore drilling. In contrast, a high
price imposed by policy creates incentives for consumers to conserve,
but not for producers to engage in costly production from easily damaged
resources. An oil tax transfers revenues to the government, which can
use them for environmental investment, other public purposes, or refunds
to citizens.
Predicting the future—what will happen next week or next month—is
challenging; predicting a century of technological and economic change
is inescapably fraught with uncertainty. Nonetheless, the best available
estimates imply that we can, indeed, afford the economics of 350. What
we cannot afford is too little climate policy, too late.
References
- Ackerman, F et al. The Economics of 350: The Benefits and Costs of Climate Stabilization
[online] (Stockholm Environment Institute, Economics for Equity and the
Environment Network,
2009).www.e3network.org/papers/Economics_of_350.pdf
- Hansen, J et al. Target atmospheric CO2: where should humanity aim? Open Atmospheric Science Journal 2, 217–231 (2008).
- van Vuuren, DP et al. Stabilizing greenhouse gas concentrations at low levels: an assessment of reduction strategies and costs. Climatic Change 81, 119–159 (2007).
- DeCanio, SJ. The political economy of global carbon emissions reductions. Ecological Economics 68, 915–924 (2009).
- Azar, C, Lindgren, K, Larson, E & Möllersten, K. Carbon capture
and storage from fossil fuels and biomass—costs and potential role in
stabilizing the atmosphere. Climatic Change 74, 47–79 (2006).
- Barker, T & Jenkins, K. The Costs of Avoiding Dangerous
Climate Change: Estimates Derived from a Meta-analysis of the
Literature; A Briefing Paper for the Human Development Report 2007 (Cambridge Centre for Climate Change Mitigation Research, Cambridge, UK, 2007).
- Knopf, B et al. Report on First Assessment of Low Stabilization Scenarios [online] (Potsdam Institute for Climate Impact Research, Potsdam, Germany, 2008).
http://www.pik-potsdam.de/members/knopf/publications/d-m2.6_pik_lowstab.pdf
- Nauclér, T& Enkvist, P-A. Pathways to a Low-Carbon Economy: Version 2 of the Global Greenhouse Gas Abatement Cost Curve [online] (McKinsey & Company, Seattle, 2009).
www.mckinsey.com/clientservice/ccsi/pathways_low_carbon_economy.asp.