Costs of Emissions Cuts – 6/7/16

Since the world’s top officials have already signed an agreement to fight emissions and climate change, it is clear that most would be open to enacting policies to do so. Yet, the costs of sustainable, long-term changes are unclear to the economists advising policymakers, what is apparent is that the short-term emissions targets will be easier to reach than the long-term targets.

“There’s an optical illusion right now, which is that short-term planning leads to low-hanging fruit but not to the kind of strategy that we need to achieve deep decarbonization by 2050,” said Columbia University economist Jeffrey Sachs.

Still, any scientist with a shred of credibility would agree that the risk of catastrophic flooding and heat waves rises significantly with each degree increase in global temperatures.

Politicians in power are beginning to act as though such disasters are possible and need to be avoided. For the U.S. in particular, the Obama administration committed to cutting U.S. greenhouse-gas emissions 26%-28% by 2025 based on 2005 levels with a less definite suggestion that the U.S. could cut emissions 80% by 2050.

Modeling conducted by Resources for the Future, an independent think-tank, shows that a carbon tax could achieve the 2025 target with only a small impact on the U.S. economy. A $45-per-ton tax of carbon dioxide would make households worse off in 2030 by an amount equal to an imperceptible 0.45% – 0.79% of household spending. Their findings show the price of electricity would rise 15% and gasoline prices would go up slightly less than 8% over the course of 14 years while achieving over 75% of the 26% to 28% emissions target. The Clean Power Plan may force states to use such a carbon tax as a means to meet mandated emissions cuts.

An 80% reduction goal by 2050 could hurt much more. Of course, many factors, such as advances in technology (electric cars, self-driving cars, falling renewable energy costs), are difficult to account for in analysis. Most attempts to predict the state of the world beyond 2030 will be pure speculation so the following numbers should be taken with a grain of salt.

A simulation from the think-tank using six different models suggests the world could meet those emissions targets if every country applied a carbon tax of $60 per ton by 2050 with a resulting reduction in economic output of 5% to 10%. The only long-term models without significant economic costs attached to greenhouse-gas cuts were those assuming the implementation of negative emissions technology that would remove greenhouse gases. Sadly, negative emissions technology does not yet exist in a form viable for meaningful usage.

“To believe you can stabilize emissions at concentrations that would be protective of a two-degree target, means you can believe you can suck carbon dioxide out of the atmosphere at a cost the general population of the world will accept,” said Mr. Kopp, of Resources for the Future. “These are science-fiction sort of problems.”

Again, technological “revolutions” could make deep carbon reductions possible. It would hardly be surprising to see emissions fall once people start buying electric cars en masse or once utilities switch to less carbon intensive fuels like natural gas or renewables.

Analysis by Bloomberg New Energy Finance illustrates how close we may be to widespread adoption of electric vehicles. It seems safe to assume that more electric vehicle use would mean less oil use, but that wouldn’t mean much for emissions if that electricity came from dirty coal power plants.

rise of electric cars

Fortunately, Bloomberg data shows that solar and wind are growing at an astoundingly fast rate compared to fossil fuels.

Screenshot 2016-06-01 at 12.25.21 PM

And even the conservative estimates provided by the EIA show natural gas, a substantially cleaner burning fossil fuel, and renewables, primarily zero-emissions technologies like wind and solar, replacing coal as the primary source of electricity for Americans.

EIA energy projections

An optimist might say that the combination of lower power sector and transportation sector emissions could change entirely the equations for long-term costs of emissions cuts. Though a carbon tax would still be necessary to reach the 80% cut target, the size of the tax and the pain passed down via prices to American consumers would shrink quite a bit.

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