3 Questions: Sergey Paltsev on the costs of climate-change legislation

Nov 05, 2009 by David L. Chandler

Sergey Paltsev, a principal research scientist in MIT’s Joint Program on the Science and Policy of Global Change, was the lead author of a recent report that analyzed the costs of climate legislation currently being debated in Congress. The analysis looked at the costs associated with the Waxman-Markey bill that was passed in June, and found the bill’s cap-and-trade provisions would have an average annual cost per U.S. household of $400.

The study did not provide a comparison of what costs would be for a “no policy” case — in other words, the costs that would result from unmitigated climate change, or from other causes such as air or that might be associated with unregulated burning of .

Q: Have there been any changes proposed since the original bill was passed, or that are currently under discussion, that would make much of a difference in this cost estimate, one way or the other?

A: Currently, the already-passed Waxman-Markey bill and the Senate version, the Kerry-Boxer bill, are similar in emissions-reduction targets and total . There are some minor differences, but unless major changes are proposed during the discussions in the Senate, the overall costs are similar. It should be noted that now the heat of the discussions are on the emission allowance allocation, which would determine who gets the emissions rights for free, who has to pay for them, and how the permit revenue will be spent. The outcome of this process would benefit or hurt certain industries or households of different income classes. The decisions about revenue allocation would affect who gains and who loses more, and as the stakes are high, there are many parties trying to influence the outcome. But the average economic burden, which is what we calculated, is not much affected by the allowance allocation.

Q: Apart from measures that are specifically being considered now, did your analysis suggest any different approaches, or modifications of the present proposal, that would bring about any significant reduction in these costs?

A: We have done other studies where we have considered issues related to the design of cap-and-trade or carbon tax systems. Ultimately, the cost of the policy is determined by the reduction targets, the possibility of banking or borrowing of permits over time, the amounts of offsets, and any additional measures directed at greenhouse gas reduction, such as renewable electricity standards, subsidies to carbon-free technologies, building standards, energy efficiency measures, etc. For the same reduction targets, overall costs are lower if there are fewer additional measures. However, these additional measures are popular because they allow hiding the true cost of the policy. For example, renewable electricity standards would reduce carbon price but increase the overall cost to the economy. As carbon price is a more visible indicator and overall cost is harder to measure, legislators might prefer to introduce such standards despite their economic inefficiency, simply because they create an illusion of achieving a target at a lower cost. At the same time, as I have already mentioned, distribution of allowance revenue could reduce the impact on, for example, low-income families or coal-producing regions, and we have a forthcoming study addressing this issue.

Q: Can you address how the costs that could result from a “no policy” case might compare with the costs of the proposed regulations?

A: In the case of “no climate policy,” I think it is more appropriate to talk about “damages” instead of “costs,” because there are some things that can be easily associated with dollar amounts and there are other things that are harder to quantify and to put a price tag on. At the MIT Joint Program we have done studies where we are trying to quantify the costs associated with the impacts of climate change on agriculture and coastal infrastructure, and of air pollution on human health. These are easier to quantify. However, there are many other important effects that cannot be convincingly put into a dollar measure, and for this reason we have not tried to estimate the economic and environmental effects of a no-policy path. Consider, for example, the main icon of a climate change — polar bears. How can one put an appropriate cost in dollar terms for a potential disappearance of polar bears due to melting Arctic ice? Or, as another example, on a coral bleaching due to increasing ocean temperature and acidification? Some people even argue that climate change is a strategic problem that should not be considered in terms of a traditional “benefit-cost” approach.

In our analysis of the Waxman-Markey bill we focus on estimating costs of the stated targets. We always stress that there are many uncertainties in our cost estimates and we try to quantify these uncertainties, but the uncertainties in the damages estimates are much larger.

Some people argue about yet another aspect of the problem. Societies have many important issues where resources are needed — to name just a few, a fight against hunger and poverty, improved access to medical facilities and education, fighting AIDS and malaria, and providing a better water supply. Climate change is an important problem, but is it diverting resources from other no-less-important problems? There are plenty of links between climate change, poverty, water supply, and diseases — but with scarce resources, is it better to focus on solving or, for example, directly on fighting poverty? Obviously, we should try to do both. But where should the emphasis be? These are tough questions: How do we equate a potential loss of life of a polar bear with that of a hungry child in Africa now?

More information:

An analysis of the Waxman-Markey bill and other related studies are available at the MIT Joint Program on the Science and Policy of Global Change web site (globalchange.mit.edu/).

This study, “The of Climate Policy in the United States,” (http://globalchange.mit.edu/pubs/abstract.php?publication_id=1965) was done by principal research scientist Sergey Paltsev, associate director for research John Reilly, program co-director Henry Jacoby, and research assistant Jennifer Morris, all of the MIT Joint Program on the Science and Policy of Global Change.

Provided by Massachusetts Institute of Technology (news : web)

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Arkaleus
5 / 5 (3) Nov 05, 2009
The only thing "anthropogenic" about climate change is the subjective and arbitrary value assignments given to climate. "Bad" climate is only bad because humans perceive it to be bad, but the rest of nature may actually benefit. For supposedly "progressive" minds rallying for climate change legislation on behalf of "earth" or "nature", it's odd they would force such a shallow, human-centric view on the earth's climate. We might complain about higher CO2, but much of today's plant life evolved with much higher CO2 levels. Higher carbon dioxide might worry those who arbitrarily assign 1950's levels as the "normal" level (There is NO valid reason to do this, it's completely arbitrary) but the rest of nature might flourish from higher CO2 concentrations and warmer temps (like when they evolved.)

Our era might actually be quite unusual in terms of earth's longer cycles, and our silly panic about its changes are ignorant reactions to a system we are not familiar.
ricarguy
5 / 5 (3) Nov 06, 2009
From the article this says it all:

"For the same reduction targets, overall costs are lower if there are fewer additional measures. However, these additional measures are popular because they allow hiding the true cost of the policy."

Whether you think AGW is a problem or not, those writing the legislation are not interested in the best solution. They instead put effort into hiding what they are doing and the cost. Even if the activities needed to conceal the policy cost the taxpayer even more.

It is insulting to be treated like an ignorant subject by the state, rather than a citizen.
Arkaleus
5 / 5 (2) Nov 06, 2009
This clever piece of green propaganda conceals false assumptions behind a presentation of scientific authority, which is the modus operandi of the green political machine.

False assumption 1: The economic cost of climate change can be calculated.

False assumption 2: Slightly lowering co2 emissions from human sources will prevent the climate from changing. There is no proof this will work.

False assumption 3: Climate change is a social justice issue.

False assumption 4: Changing climactic conditions are only "bad" and have no benefit to life on earth.

The major driving force behind the green political machine is academia (who seduce the impressionable and young with the delusions of statism), clumsily smuggling class-struggle Marxism and social justice issues into climatology.

The fact this guy still mentions polar bears merits laughter all by itself.
LKD
5 / 5 (1) Nov 06, 2009
Quote: "How do we equate a potential loss of life of a polar bear with that of a hungry child in Africa now?"

Exactly how does one justify this statement when the polar bear population is increasing as we speak? Surely the reporter has no interest in reporting, but in providing a platform for this bad science.