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Nov 2014: China-US agreement on carbon emissions

Explore the 2014 US-China agreement on reducing carbon emissions, implications for global climate, carbon pricing, risks, and needed actions for mitigation and adaptation. Includes economic analyses and recommendations from the Stern Report.

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Nov 2014: China-US agreement on carbon emissions

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  1. Nov 2014: China-US agreement on carbon emissions • President Obama pledges to reduce GHG emissions by -26 to 28% • of 2005 levels by 2025 • president Xi Jinping pledges that China’s GHG emissions will peak • by ~2030, if not sooner, and move to 20% no-carbon energy by 2030 • NOTE: US + China = 30% of global GHG emissions

  2. Relevant carbon prices as of Jan 15, 2015 relative to Nov 15, 2014 http://californiacarbon.info/wp-content/uploads/2015/01/California-and-the-Carbon-World-Jan-2015.pdf

  3. carbon “taxes” cap and trade & S. Korea effective 1/1/15 http://californiacarbon.info/wp-content/uploads/2015/01/California-and-the-Carbon-World-Jan-2015.pdf

  4. http://ec.europa.eu/clima/policies/g-gas/documentation_en.htm#Reportshttp://ec.europa.eu/clima/policies/g-gas/documentation_en.htm#Reports

  5. http://theenergycollective.com/trevorhouser/245991/ neck-and-neck-us-and-european-ghg-emissions-trends

  6. http://theenergycollective.com/trevorhouser/245991/ neck-and-neck-us-and-european-ghg-emissions-trends

  7. Contributions to emissions changes in the EU http://ec.europa.eu/clima/policies/g-gas/ documentation_en.htm#Reports renewables energy efficiency economic growth

  8. End use of proceeds ($) from carbon allowances across EU

  9. http://riskybusiness.org

  10. Risk = probability of outcome x severity of its consequences Costs of carbon mitigation? vs Costs of adaptation? HOW DO WE MINIMIZE RISK?

  11. Risk = probability of outcome x severity of its consequences “tail” risk = low-probability event w/ potentially catastrophic impacts

  12. Climate Risks are Regional

  13. 3 areas of action to minimize climate risk: • change business practice to become • more resilient • 2) investor adaptation (SEC issued guidance • on climate disclosure; only 40% of S&P • companies voluntarily participate) • 3) public sector response – investments and • policies that can reduce GHG emissions

  14. When combine high-tail risks w/ catastrophic costs, any cost-benefit analysis (CBA) of climate change mitigation vs. adaptation is dominated by so-called “fat tail” risk. e.g. Weitzman, Martin L. 2009. On modeling and interpreting the economics of catastrophic climate change. Review of Economics and Statistics 91(1): 1-19.

  15. The Stern Review: The Economics of Climate Change commissioned by UK Prime Minister & Chancellor in 2006 • Some Stern numbers: • the timeframe for most of their economic analyses • 550ppm the CO2 target level of stabilization • 5-20% range of costs to world output associated with climate change • comment: relatively pessimistic view of consequences • -1 to 5% range of costs associated with stabilizing CO2 at 550ppm • comment: relatively optimistic view of mitigation • $85 cost of one ton of CO2 in Business as Usual (BAU) • $25-35 cost of one ton of CO2 for 550ppm stabilization

  16. Stern, 2008

  17. Tail risk of temperature response to CO2

  18. Total cost of climate change in BAU scenario over next two centuries: • -5% of global per capita consumption • however, this 5% number does not take into account: • “non-market” impacts (how do you value human health and environmental • impacts?) • positive feedbacks in the climate system (such as???) • disproportionate impact of climate change on world’s poor (equity) • Including these factors could bring the cost of climate change to -20%!

  19. What action is needed, according to Stern: • Mitigation: • Carbon pricing (tax or trading) • Technology policy (spur development of low-C energy) • Remove barriers to behavioral change (enforce changes where • economic incentives are not strong enough) • Adaptation: • Improve climate information; esp. regional climate forecasts • Land-use and building planning (infrastructure decisions) • Natural resource protection, coastal protection, etc • Financial safety net for poorest members of society • The Stern Report urgently calls for coordinated, international action, • justified by cost-benefit analysis of climate risks (costs of -5 to -20%) • balanced against mitigation (costs of -1 to -5%).

  20. www.c2es.org • - run a “top-down” climate policy – economic impact model • (limitations, assumptions, inputs?) • for a doubling of GHG (to 560ppm), benefits of • mitigation $55-140billion (0.5-2% GDP) • cost of mitigation 0.2-1.5% GDP ($25-200/ton of carbon) How do we interpret a “price on carbon”?

  21. McKinsey 2008 report on cost of US GHG reductions

  22. McKINSEY GLOBALABATEMENT CURVE

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