Policy Archives - Page 15 of 17

The Deal We Ain't Got

Today, Drew Jones and I presented a simple model as part of the TÃ¤llberg Forum’s Washington Conversation, ‘The climate deal we need.’ Our goal was to build from some simple points about the bathtub dynamics of the carbon cycle and climate to yield some insights about what’s needed. Our aspirational list of insights to get across included,

stabilizing emissions near current levels fails to stabilize atmospheric concentrations any time soon (because emissions now exceed uptake of carbon; stabilization continues that condition, and the residual accumulates in the atmosphere)
achieving stabilization of atmospheric CO2 at low levels (Hansen et al.’s 350 ppm) requires very aggressive cuts (for the same reason; if carbon cycle feedbacks from temperature kick in, negative emissions could be needed)
current policies are not on track to meaningful reductions (duh)
nevertheless, there is a path (Hansen et al.’s “where should humanity aim” paper lays out one option, and there are others)
starting soon is essential (the bathtub continues to fill while we delay – a costly gamble)
international negotiation dynamics are tricky due to diversity of interests, coupled problem spaces, and difficulty of transfers (simulations shadow this)
but everyone has to be on board or little happens (any one major region or sector, uncontrolled, can blow the deal by emitting above natural uptake)

A good moment came when someone asked, “Why should we care about staying below some temperature threshold?” (I think a scenario with about 3.5C was on the screen at the time). Jim Hansen answered, “because that would be a different planet.”

The conversation didn’t lead to specification of “the deal we need” but it explored a number of interesting facets, which I’ll relate in a few follow-on posts.

WCI Design Recommendations

Yesterday the WCI announced its design recommendations.

Update 9/26: WorldChanging has another take on the WCI here.
I haven’t read the whole thing, but here’s my initial impression based on the executive summary:

Scope

Major gases, including CO2, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride.

What?	In scope?	How/where?
Large Industrial & Commercial, >25,000 MTCO2eq/yr
Combustion Emissions	Yes	Point of emission
Process Emissions	Yes	Point of emission
Electricity	Yes	“First Jurisdictional Deliverer” – includes power generated outside WCI
Small Industrial, Commercial, Residential	Second Compliance Period (2015-2017)	Upstream (“where fuels enter commerce in the WCI Partner jurisdictions, generally at a distributor. The precise point is TBD and may vary by jurisdiction”)
Transportation
Gasoline & Diesel	Second Compliance Period (2015-2017)	Upstream (“where fuels enter commerce in the WCI Partner jurisdictions, generally at a terminal rack, final blender, or distributor. The precise point is TBD and may vary by jurisdiction”)
Biofuel combustion	No
Biofuel & fossil fuel upstream	To be determined	?
Biomass combustion	No, if determined to be carbon neutral
Agriculture & Forestry	No

(See an earlier Midwestern Accord matrix here.)

Continue reading “WCI Design Recommendations”

How To Fix A Carbon Tax

Imagine that you and I live in a place that has just implemented a carbon tax. I, being a little greener than you, complain that the tax isn’t high enough, in that it’s not causing emissions to stabilize or fall. As a remedy, I propose the following:

At intervals, a board will set targets for emissions, and announce them in advance for the next three years.
On a daily basis, the board will review current emissions to see if they’re on track to meet the annual target.
The daily review will take account of such things as expectations about growth, the business cycle, weather (as it affects electric power and heating demand), and changing fuel prices.
Based on its review, the board will post a daily value for the carbon tax, to ensure that the target is met.

Sound crazy? Welcome to cap and trade. The only difference is that the board’s daily review is distributed via a market. The presence of a market doesn’t change the fact that emissions trading has its gains backwards: rapid adjustment of prices to achieve an emissions target that can only be modified infrequently (the latter due to the need to set stable quantity expectations). Willingness to set a cap at a level below whatever a tax achieves is equivalent to accepting a higher price of carbon. Why not just raise the tax, and have lower transaction costs, broader sector coverage, and less volatility to boot?

Certainly cap and trade is a viable second-best policy, especially if augmented with a safety valve or a variable-quantity auction providing some supply-side elasticity. However, I find the scenario playing out in BC quite bizarre.

Update: more detailed thoughts on taxes and trading in this article.

The GAO's Panel of Economists on Climate

I just ran across a May 2008 GAO report, detailing the findings of a panel of economists convened to consider US climate policy. The panel used a modified Delphi method, which can be good or evil. The eighteen panelists are fairly neoclassical, with the exception of Richard Howarth, who speaks the language but doesn’t drink the Kool-aid.

First, it’s interesting what the panelists agree on. All of the panelists supported establishing a price on greenhouse gas emissions, and a majority were fairly certain that there would be a net benefit from doing so. A majority also favored immediate action, regardless of the participation of other countries. The favored immediate action is rather fainthearted, though. One-third favored an initial price range under $10/tonCO2, and only three favored exceeding $20/tonCO. One panelist specified a safety valve price at 55 cents. Maybe the low prices are intended to rise rapidly (or at the interest rate, per Hotelling); otherwise I have a hard time seeing why one would bother with the whole endeavor. It’s quite interesting that panelists generally accept unilateral action, which by itself wouldn’t solve the climate problem. Clearly they are counting on setting an example, with imitation bringing more emissions under control, and perhaps also on first-mover advantages in innovation.

Continue reading “The GAO's Panel of Economists on Climate”

China's Energy Policy Comes at a Price

That’s the title of a letter in the latest edition of Science. It nicely expands on some of my earlier concerns about China’s energy policy in the Clout & Climate Change war game and in reality. The author, Quiang Wang of the Guangzhou Institute of Geochemistry, writes,

…

China’s energy prices are mainly decided and controlled by the government. Because the government emphasizes social stability over scarcity of resources or environmental cost, it sets the energy prices very low. For example, Chinese gasoline and diesel prices rose by less than 10% in 2007, when global oil price nearly doubled. Moreover, in January 2008, the Chinese government decided to freeze energy prices in the near term, even as international crude oil futures have continued to surge.

Energy conservation and efficiency are hard to achieve because government-set prices encourage excessive energy consumption and waste. The low energy prices send a distorted market signal to consumers that there is no shortage of natural resources, indicating that enhancing energy efficiency is unnecessary and waste is justified.

…

A market-oriented energy-pricing mechanism is an inevitable requirement for China to address climate change, although the reform of the energy pricing mechanism means increased energy prices, which will bring public dissatisfaction and possibly social instability.

In 2005, I built a simple model of the Chinese electric power system, focused on coal-fired generation. One of the most beneficial strategies in the model is to make plant dispatch and power pricing more market-oriented, strengthening the incentive to install cleaner generation and retire or retrofit old dirties. That’s tough to implement as long as utilities wield more power than their regulators.

Climate War Game – Recap

I presented a brief review of my involvement in the CNAS wargame at Balaton today. My last fewÂ slidesÂ focus on some observations from the game.Â They led to a very interesting conversation about targets for future models and games. We have been planning to continue seeking ways to insert models into negotiations, with the goal of connecting individual parties’ positions to aggregate global outcomes. However, in the conversation we identified a much more ambitious goal: reframing the whole negotiation process.

The fundamental problem, in the war game and the real world, is that nations are stuck in a lose-lose paradigm: who will bear the burden of costly mitigation? No one is willing to forego growth, as long as “growth is good” is an unqualified mantra. What negotiations need is a combination of realization that growth founded on externalizing costs of pollution and depletion isn’t really good, and that fixing the institutional and behavioral factors that would unleash large low- or negative-cost emissions reductionsÂ and cobenefits wouldÂ be a win-win. That, combined with a serious and equitable accounting of climate impacts within the scope of present activities and coupling of adaptation and development opportunities to mitigation could tilt the landscape in favor of a meaningful agreement.

Regional Climate Initiatives – Model Roll Call – Part II

Minnesota

The Minnesota Next Generation Energy Act establishes a goal of reducing GHG emissions by 15% by 2015, 30% by 2025, and 80% by 2050, relative to 2005 levels.

From ScienceDaily comes news of a new research report from University of Minnesota’s Center fro Transportation Studies. The study looks at options for reducing transport emissions. Interestingly, transport represents 24% of MN emissions, vs. more than 40% in CA. The study decomposes emissions according to a variant of the IPAT identity,

Emissions = (Fuel/VehicleMile) x (Carbon/Fuel) x (VehicleMilesTraveled)

Vehicle and fuel effects are then modeled with LEAP, an energy modeling platform with a fast-growing following. The VMT portion is tackled with a spreadsheet calculator from CCAP’s Guidebook. I haven’t had much time to examine the latter, but it considers a rich set of options and looks like at least a useful repository of data. However, it’s a static framework, and land use-transportation interactions are highly dynamic. I’d expect it to be a useful way to construct alternative transport system visions, but not much help determining how to get there from here.

Minnesota’s Climate Change Advisory Group TWG on land use and transportation has a draft inventory and forecast of emissions. The Energy Supply and Residential/Commercial/Industrial TWGs developed spreadsheet analyses of a number of options. Analysis and Assumptions memos describe the results, but the spreadsheets are not online.

British Columbia

OK, it’s not a US region, but maybe we could trade it for ~~North~~ Dakota. BC has a revenue-neutral carbon tax, supplemented by a number of other initiatives. The tax starts at $10/TonCO2 and rises $5/year to $30 by 2012. The tax is offset by low-income tax credits and 2 to 5% reductions in lower income tax brackets; business tax reductions match personal tax reductions in roughly a 1:2 ratio.

BC’s Climate Action Plan includes a quantitative analysis of proposed policies, based on the CIMS model. CIMS is a detailed energy model coupled to a macroeconomic module that generates energy service demands. CIMS sounds a lot like DOE’s NEMS, which means that it could be useful for determining near-term effects of policies with some detail. However, it’s probably way too big to modify quickly to try out-of-the-box ideas, estimate parameters by calibration against history, or perform Monte Carlo simulations to appreciate the uncertainty around an answer.

The BC tax demonstrates a huge advantage of a carbon tax over cap & trade: it can be implemented quickly. The tax was introduced in the Feb. 19 budget, and switched on July 1st. By contrast, the WCI and California cap & trade systems have been underway much longer, and still are no where near going live. The EU ETS was authorized in 2003, turned on in 2005, and still isn’t dialed in (plus it has narrower sector coverage). Why so fast? It’s simple – there’s no trading infrastructure to design, no price uncertainty to worry about, and no wrangling over allowance allocations (though the flip side of the last point is that there’s also no transient compensation for carbon-intensive industries).

Bizarrely, BC wants to mess everything up by layering cap & trade on top of the carbon tax, coordinated with the WCI (in which BC is a partner).

Climate War Game – China's Position

Given its large global presence in 2015, by any measure, China’s posture in the negotiations was critical. The Climate Game Times reported:

China put forth a set of principles yesterday that will guide today’s continued negotiations on migration, disaster relief, resource scarcity, and emissions reductions…. These principles included statements that China’s efforts in these areas will be consistent with its development objectives, and that historical contributions to greenhouse gas emissions be considered in setting targets and dividing the responsibility for global mitigation.
…
In perhaps the most important detail to emerge from yesterday’s negotiations, the China team will continue to lead in pushing for technology transfers for mitigation and adaptation measures, particularly in emissions reductions, in land use and forestry, and in agriculture so as to encourage a new ‘green revolution.’

I spent much of my time sitting in on the China team’s deliberations. The discussion was very realistic when viewed in the light of 2008 developing country positions, but I began to wonder whether that position could lead to a good outcome for the people of China. Some underlying assumptions that trouble me:

Continue reading “Climate War Game – China's Position”

Climate War Game – In Pictures

Two quick visualizations of the scenario data behind the war game:

First, a map of what happens to the concentration of atmospheric CO2 as a function of an emissions target to which participating regions adhere (y axis) and the regions participating (enumerated on the x axis). This is basically an elaboration of everyone plays. The color scheme on the surface shows atmospheric CO2 concentration in 2100 in slightly cryptic units (TonC). The important thing to know is that the bluest end of the scale (all in, aggressive targets) succeeds in staying under 466ppm, the reddest end (no action) is a disaster at up to 750ppm, and the green and turquoise bands are near 2x CO2. Click the graphic for a larger version.

Second, a visual version of some of the data in the reduction illusion. Bubble size is proportional to regional CO2 emissions in 2015.

Climate War Game – Everyone Plays

A fundamental tension in the war game arose from the fact that, regardless of development and equity considerations, all large nations would have to make cuts eventually, because there simply isn’t enough atmosphere to go around. Consider the following graph, showing the tradeoff in emissions cuts for a two-region world.

The x-axis shows the size of emissions reductions in a major region, representing a quarter of business as usual emissions (think US or China). The y-axis shows how much the rest of the world would have to cut to meet a global target, given the action of the first region. You can see from the solid orange line that meeting an 80% global cut requires at least a 20% cut from the major region. Otherwise, it’s not physically possible to balance the carbon account (unless free-air capture, a thermodynamic loser, becomes viable). A global target of a 90% cut from current levels – not an implausible requirement in the long run – requires at least 60% participation from the major nation above. Clearly the developing country position of do-nothing-but-grow can be no more than a transient if we are to make real progress on mitigation.