climate change

1. 1 CLIMATE CHANGE What is Going On, Why?

2. 2

3. 3 We will first look at some data on global temperatures, the greenhouse gas effect, and then will explore the policy issues associated with global climate change.

4. 4 I. What the Data Show

5. 5

6. 6

7. 7

8. 8

9. 9

10. 10

11. 11

12. 12 The oceans play an important role in global climate The dominant aspect here is the �conveyor belt.� This is the system of water movement in the oceans.

13. 13

14. 14

15. 15 II. Greenhouse Gasses The �Greenhouse Effect� is a product of increased levels of carbon dioxide (CO2) and nitrous oxide (N20). Methane (CH4) is a problem as well. All three of these gases show enormous increases over the recent past. The concentrations of these gasses trap solar radiation inside the earth�s atmospheric and thus do not let the heat escape. And so surface temperatures rise.

16. 16 Where do greenhouse gasses come from? As with fuel use we categorize them by commercial, industrial, residential, and transportation. And the most important greenhouse gas is carbon dioxide.

17. 17 INDEXED CARBON DIOXIDE EMISSIONS BY SOURCE

18. 18 III. The Policy Problem Climate change policy is geared to limiting greenhouse gas emissions so as to stabilize the impacts on climate change. The famous Kyoto Protocol was designed to convince countries to reduce their emissions of greenhouse gasses. It is named after the historic capital of Japan (Kyoto) where an important meeting occurred among all of the countries under the auspices of the United Nations Framework Convention on Climate Change. You can read it�though you do not have to�at the link:

19. 19 Whether or not the Kyoto Protocol is ever adopted, the central issue is how to reduce the effects of greenhouse gasses on climate? There are three policy approaches: #1: A tax on carbon-rich fuels; #2: Carbon sinks (carbon sequestration); #3: An emissions cap plus trading of emissions permits

20. 20 POLICY OPTION # 1: A TAX ON CARBON-RICH FUELS The tax will raise their costs vis-�-vis other fuels and induce technical change to facilitate the switch to other fuels. The tax could be adjusted to the degree of �dirtiness� of the fuel. ? this would mean that high-sulfur (soft brown) coal would cost more to use than would low-sulfur (hard anthracite black) coal. ? this would also mean that clean fuels such as natural gas would be cheaper than dirty fuels such as coal and oil.

21. 21

22. 22 This short-run effect would, over time, tend to induce technical change in automobile engines (toward hybrid engines), and it would induce people to change their driving behavior.

23. 23

24. 24 POLICY OPTION #2: CARBON SEQUESTRATION To understand this approach we need to reintroduce the idea of the industrialized (and rich) North and the agrarian (and poor) South. This is necessary since most of the current emissions of CO2 come from the North, but in the future, with economic development, the bulk of the additional loadings of CO2 will come from the poor countries as their standards of living improve.

25. 25 Consider the following figure in which GN represents the stabilized time trend of CO2 emissions from the North, GS represents the expected trajectory of CO2 emissions from the South, and G represents the sum of CO2 emissions from North and South.

26. 26 Now let us introduce the idea of a sustainability constraint in which we do not allow greenhouse emissions to rise over time, but in fact force them to decline to some level that will stabilize atmospheric warming. This sustainability constraint is shown below as G*. The shaded area shows the approximate amount by which total expected emissions exceed the sustainability constraint.

27. 27 If deforestation in the agrarian South continues then the problem will be made worse since forested areas have the ability to sequester CO2 If deforestation continues then we will need to reduce emissions even more. This new sustainability constraint is shown below as G~. The new cross-hatched area shows the amount by which expected emissions exceed the sustainability constraint with deforestation continuing as it has in the past. Sequestration is a very cost-effective approach (next slide).

28. 28 Comparative Costs of Reducing Carbon Gasses

29. 29 We see, in fact, that a limit on total emissions is closely tied up with the idea of carbon sinks. That is, the level of �allowable� emissions of CO2 (the sustainability constraint) is dependent on the rate at which forests in the agrarian South are destroyed. If there remain ample forested areas then the emissions �cap� can be lower than if forests continue to disappear. Let us see how this works.

30. 30 We start with a few assumptions: First, �economic development� requires that some fraction of existing forests in the agrarian tropics be cut down for highways, resettlement of urban poor (squatters), and for earning foreign exchange from timber exports�such earnings being used to invest in manufacturing, etc. Therefore, as development prospects go up, the ability to preserve the current extent of forested area will be reduced.

31. 31 This gives us the following relationship:

32. 32 Now consider the capacity to sequester CO2 for different levels of forested area that can be maintained.

33. 33 We can put #31 and #32 together as we saw previously for pollution

34. 34 Now consider the necessary abatement costs to bring about various levels of CO2 reduction in the industrialized North, under four assumptions of CO2 sequestration in the South

35. 35 Here we see that if all of the current forested area in the South can be maintained, we will be able to sequester 160 MT of CO2 per year without spending any on abatement costs in the North. But if the forested area in the South shrinks to 75% of its current level, carbon sequestration will fall to 120 MT, and if the forested areas shrinks to 25% of its current level then only 40 MT of CO2 can be sequestered annually. Finally, if all the forests are destroyed there will be no CO2 sequestration.

36. 36 However, we know that maintaining large forested areas will mean that the pace and extent of economic development will suffer and that the agrarian nations in the South will thereby be �held back.�

37. 37 Assume that the required reduction of CO2 in order to comply with the sustainability constraint is 200 MT per year. If all of that had to be accomplished by abatement of CO2 in the industrialized North, the total cost would be the shaded area below. This is equivalent to eliminating forest cover entirely so that there is zero sequestration.

38. 38 But if the South can be persuaded to preserve its current level of forest cover then 160 MT of that �reduction� could be accomplished through �free� sequestration. With the remainder needing to come from reduction in emissions in the industrialized North. Of course it is not �free� since the South seems likely to suffer economically by continuing to preserve forests rather than cutting them down in the interest of �development.� What options exist?

39. 39 Notice that if the South provides 160 MT of �free� sequestration, the industrialized North only needs to spend money to reduce the remaining 40 MT per year. This total amount is shown as the blue solid area below. This liberates the North of the costs indicated below by the blue checked area. The South is �gifting� carbon sequestration to the North.

40. 40 These cost savings in the North could easily be devoted to programs to help the South undertake economic development strategies that would make it unnecessary to destroy forests. Examples would be technical assistance programs to launch sustainable development strategies without harming forests. Another might be development strategies to foster job creation and urbanization efforts to draw people to the cities

41. 41 POLICY OPTION #3:EMISSION LIMITS AND PERMIT TRADING Assume that the sustainability constraint is 300 MT per year and that current emissions are 500 MT. This means that a reduction of 200 MT per year is necessary. Notice that the North and the South could share, somehow, the allowable emissions of 300 MT. Each region (North and South) could be given emission permits totaling 150 MT of CO2 per year with the understanding that they could not exceed those limits. At the moment, assume that the South needs only 50 MT of allowable emissions permits, meaning that it receives permits for 100 MT that it does not need. At the same time, the North needs more than its 150 MT. In fact, the North has a current emission level of 290 MT annually.

42. 42 We see here the possibility of a market for permits emerging The South has 100 MT of permits that it does not need; While the North needs permits allowing it to dump 290 MT of CO2 annually. Unfortunately, the North has only 150 MT of its own allowable emissions, plus 100 that it can buy from the South. This means that it is 40 MT short of being able to come into compliance with the sustainability constraint of 300 MT of CO2.

43. 43 Recall that the retention of forests in the South accomplishes 160 MT of reductions �free� of charge. The North, in its purchase of 100 MT of emission permits from the South represents a flow of money to the South. This means that industries in the North will also need to spend an additional amount (the blue solid area below) on abatement of CO2. But this is much less than had there been no carbon sequestration in the South.

44. 44 To summarize: Current emissions are 500 MT; The sustainability constraint is 300 MT; The required reduction is 200 MT; Carbon sequestration by forests in the South will accomplish 160 MT of that; Industries in the North must pay to remove 40 MT of CO2 annually; Total emissions may not exceed 300 MT.

45. 45 Total emissions will be allocated as follows: The North will emit 250 MT of CO2 150 MT of this will be from its own permits 100 MT of this will be from permits purchased from the South The South will emit 50 MT of CO2 And it will sell permits for 100 MT to the North Payment for these permits can help to offset some of the costs of maintaining its forests to accomplish valuable CO2 sequestration. Additional funds preserving the South�s forests could come from industry or governments in the North.