After the election of Obama and a number of others with green credentials, the coal and oil industries are ramping up their PR efforts against federal policy to lower greenhouse gas emissions (GHGs). The old arguments of climate policy raising energy prices so much that the US loses its competitive advantage in manufacturing are being dusted off and repeated in an attempt to block progress. But let’s revisit US costs of mitigation by reviewing a solid report by Environmental Defense this past Spring.
To achieve a target of 2 degrees Celsius global warming (~450 parts per million carbon dioxide equivalent in the Earth’s atmosphere), we need to begin lowering global emissions by 2020. If we wait until 2020, emissions will need to fall roughly 3.3% per year. If instead we begin the cuts in 2015 or 2010, the pace of emissions cuts are easier to manage at 2.4% or 1.8% annually. The key legislative template designed to achieve such a cut is a Lieberman-Warner style cap on emissions that allows trading to achieve 1990 levels by 2020 and then 70-80% below current emissions by 2050. Such dramatic cuts in emissions from an economy so dependent on fossil fuels for its energy intuitively seem to require large costs. But the EDF report surveys five different economic model runs and finds the costs are miniscule.
Instead of a 2.86% GDP growth rate through 2030, a capped economy is projected to grow at 2.84% per year. Put another way, the roughly doubling of our economy by 2030 to $26 trillion occurs in April under a cap instead of January. Average electricity bills increase less than 4% as renewable sources take a growing market share and appliances become more efficient. And these numbers don’t even take into account the benefits of such climate mitigation! Most economists estimate the external cost of GHG pollution of at least $10/ton carbon dioxide equivalent, translating into tens of billions in savings. And there are ancillary benefits such as improved air and water quality that such a sustainable energy transition would create. Since our economic prosperity depends on US leadership in innovation, our jobs and growth would suffer if we remained behind the EU and Japan in this emerging global economic engine, the multi-trillion dollar low-carbon energy industry. With all of these benefits admittedly not quantified in the recent EDF report, a cap and trade system is more likely to reap net benefits than net costs for our country.
Within the economy, some industries will benefit more than others. For instance, rapidly growing solar and wind industries will accelerate their development while coal producers will see their growth prospects dim. But corporations such as Peabody Coal and Exxon Mobil can use their giant resources to diversify from coal and oil companies into energy companies that further explore the limits of solar electricity generation and transmission cost reduction. Coal companies could also invest more heavily into Carbon Capture and Storage (CCS) technology, a tool that could give their fuel new life in a carbon-constrained world.
For the poor already struggling with today’s higher energy prices, the auctioned permits in a cap-and-trade system can generate revenues to support their transition to a low-carbon future. And these low-income households can benefit from the job growth already beginning in the green energy revolution. Lost textile and automaker jobs in the Rust Belt are replaced by wind turbine manufacturers and solar module producers.
An intriguing question I would like to explore in the months ahead is whether strong climate mitigation policy like a cap-and-trade system can actually lower the price of oil and coal in the medium-term since it will reduce their demand. Lower demand could reduce the pressure on companies to produce in more expensive places like the Canadian tar sands, allowing the lower marginal cost production in Saudi Arabia, Kuwait and elsewhere to suffice. This is the argument that leads many renewables advocates to conclude that energy costs will actually fall by 2020 if we invest more into wind and solar development over the next decade.
In sum, don’t let the coal or oil industry scare you into thinking climate mitigation will grind our economy to a halt. That same fear of change mentality is what doomed our domestic automakers. While opponents to climate mitigation may cherry-pick the highest cost estimates of Lieberman-Warner, EDF does a great service in providing a synthesis of many economic models to show the broad consensus of extremely low costs. The benefits of near-term action include a slower and more manageable rate of emissions cuts, reduced levels of conventional pollutants like mercury and ozone, increased energy security, and leadership in the next global industrial revolution. Action by this last developed country to mitigate climate change would also erase the excuse of China and India for inaction.
Obama and Congress, 2009 is a window of opportunity for climate progress that our nation cannot afford to miss.
Tags: CCS, climate change, Coal, EDF, mitigation cost, Natural Gas, Oil, Solar, Wind