Author Archives: Nat Keohane

Cutting carbon pollution from aviation: A major breakthrough years in the making

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(This post originally appeared on EDF Voices)

Five years ago, I had one of the hardest tasks in government for someone who cares about climate action: running an interagency process in the White House on addressing carbon dioxide emissions from international aviation.

To put it mildly, climate action in the aviation sector was at an impasse.

The European Union was seeking to extend its greenhouse gas emission trading system to include international flights to and from Europe. The EU was well within its legal rights, and a range of studies showed that despite significant emission reductions the costs to passengers would be slight.

But the political opposition was widespread and fierce.

India had gone ballistic at the idea. Russia threatened to deny Europe access to its airspace. China said it would cancel orders for European aircraft.

In the United States, meanwhile, not a single senator was willing to block legislation that railed against Europe’s proposal to cover American air carriers.

And yet, last week, the 191 member states of the International Civil Aviation Organization agreed to the first-ever cap on carbon pollution from a global sector, adopting by broad acclaim a market-based measure on carbon dioxide emissions from international flights.

The agreement, while not perfect, is significant – not only for the emissions reductions it promises to achieve, but also because of the circuitous journey that got us here.

Industry: We need consistency

The impetus to find a way out of the impasse came from two quarters.

The first was a business imperative. What the aviation industry feared more than anything was a patchwork of regulations – one approach in Europe, another in the U.S. and still another in China. That made the industry, a strong opponent of the EU’s plan, willing to come to the table to get a global deal.

The second was the Obama administration’s commitment to climate action. If we couldn’t overcome the widespread opposition to Europe moving ahead, could we leverage the threat of EU action to land an international agreement?

ICAO, the aviation agency of the United Nations, had already agreed in 2010 to explore policy options to achieve a global solution. So in the fall of 2011, I raised the idea of pivoting to ICAO in a conversation with Mike Froman, then the White House Deputy National Security Advisor for International Economic Affairs.

A breakthrough came the following spring, when Tony Tyler, head of the International Air Transport Association, met with Mike and made it clear that the industry would support a robust market-based measure in ICAO.

EU: Get a deal or else

That summer, U.S. Special Envoy for Climate Change Todd Stern held the first of a series of informal meetings among countries to discuss an ICAO solution.

Meanwhile, the administration worked to ensure that when the anti-E.U. legislation was passed by Congress that autumn, it directed the administration to negotiate a global approach.

Work on a global market-based approach accelerated once ICAO agreed in 2013 to develop a proposal for formal consideration.

The EU kept the pressure on by making clear that it would reinstate its coverage of international flights if ICAO failed to act.

The industry remained supportive, just as Tony Tyler had pledged back in 2012. Environmental Defense Fund and our partners in the International Coalition for Sustainable Aviation, which EDF helped to found 20 years ago, published economic and legal analyses and provided technical support to governments, including through expert participation in ICAO working groups.

My former colleagues in the Obama administration spearheaded the effort to reach an agreement and put on a full-court diplomatic press in the last few weeks to secure participation from as many countries as possible.

Nations: We’ll move if we can compromise

The global market-based measure announced in Montreal last week will reduce carbon pollution by an estimated 2.5 billion tons over the first fifteen years of the program. It signals continued momentum on climate action, and positions the aviation sector as an engine of demand for high-quality emissions reductions around the world.

To be sure, the agreement is not perfect. An ideal agreement would apply to all anticipated emissions growth, whereas the deal currently covers 76 percent – although that will rise if more nations join.

The “carbon-neutral growth” target must be strengthened over time if the aviation sector is to do its fair share to address climate change – which is why the agreement includes provisions for regular review in light of the Paris Agreement’s long-term temperature goals.

To accommodate the concerns of fast-growing emerging markets, the agreement initially ties each air carrier’s responsibility to the sector’s overall emissions growth, not just its own emissions – arguably a more equitable approach, but one that dampens incentives for within-sector emission reductions.

And the agreement sets a two-year time frame for finalizing the crucial draft rules needed to determine what types of emissions units will be eligible for use in the program and ensure that they are not “double-counted” against other compliance obligations.

Such compromises, however, were crucial to garnering the support of a huge majority of ICAO’s member nations and getting the agreement across the finish line.

A good day for the climate

Some, including a few of my colleagues in the environmental movement, focus on the deal’s shortcomings to castigate it or at least damn it with very faint praise.

But letting the perfect be the enemy of the good is a luxury the world cannot afford – least of all the people of countries on the front lines of climate change, such as Jamaica, Burkina Faso and the Marshall Islands, whose representatives helped create momentum for the deal in the final days of the negotiations by eloquently urging ICAO to act.

Back home in New York the night after the deal was announced, my daughters, 11 and 14, asked how my day had been. I had to pause and let it sink in.

“Well, we got an international agreement that we’ve been working toward for many years that will limit carbon pollution from airplanes – and help make the future of the planet just a little bit safer” I told them. “So, yes, it was a very good day.”

Posted in Greenhouse Gas Emissions, International, News, Partners for Change, Policy| Comments are closed

8 reasons for hope: Our top take-aways from Climate Week

(This post originally appeared on EDF Voices)

My forecast had been for a Climate Week “on steroids” and that’s exactly what we got.

Image source: Jane Kratochvil

We saw the largest climate rally in history draw 400,000 people – up from the 250,000 we had initially hoped for – and then the United Nations Climate Summit, where 125 heads of state joined business and civic leaders to discuss ways to curb greenhouse gas emissions.

Another highlight for the week was the growing momentum for putting a price on carbon. More than 1,000 businesses and investors, nearly 100 national, state, province and city governments, and more than 30 non-profit organizations called for expanding emissions trading and other policies that create market incentives for cutting pollution.

Could it be that we’re finally reaching the point of meaningful action on climate change? To find out, I asked colleagues at Environmental Defense Fund who participated in the Climate Summit for their key take-aways from the week.

Here’s their report:

1. PEOPLE’S CLIMATE MARCH

Eric Pooley, Sr. Vice President, Strategy and Communications: This march shot down, once and for all, the old canard that Americans “don't care” about climate change. And it reminded me what an extremely big tent the coalition for climate action really is — with plenty of room for groups with vastly different views.

More than 1,000 EDF members and staff, plus 300 members of the Moms Clean Air Force, were proud to be marching alongside all kinds of people from all kinds of groups from all over the country. To win on climate, we need a strong outside game and a strong inside game. EDF is helping to build both.

2. METHANE EMISSIONS RISE TO THE TOP

Mark Brownstein, Associate Vice President, U.S. Climate and EnergyMethane is becoming a top priority in the fight against climate change. Last week, EDF helped to launch the Climate and Clean Air Coalition’s Oil & Gas Methane Partnership, which creates a framework for oil and gas companies to measure and reduce methane emissions and report their progress.

At the summit, I watched the chief executive of Saudi Aramco, the world’s biggest oil company, turn to Fred Krupp to say that his company was interested in joining the six companies that already agreed to sign on. While the ultimate test of the partnership will be the reductions that it achieves, it has gotten off to a promising start.

3. COMMON GROUND ON FORESTS

Stephan Schwartzman, Senior Director, Tropical Forest Policy: One of the high points of the week, no doubt, came when 35 national and state governments, more than 60 non-profits and indigenous organizations, and 34 major corporations pledged to halve deforestation by 2020 – and to completely end the clearing of natural forests by 2030. EDF was proud to be part of the coalition that put the New York Declaration on Forests together.

4. INDIGENOUS PEOPLES GOT THE RECOGNITION THEY DESERVE

Christopher Meyer, Amazon Basin Outreach Manager: Indigenous groups from the major rain forest basins pledged to continue to conserve 400 million hectares under their control. Those 400 million hectares are important for cultural and biodiversity purposes globally, but they also hold an estimated 71 gigatons of carbon dioxide, equivalent to 11 years of emissions from the United States.

I was honored to accompany Edwin Vasquez Campos of the Coordinator of the Indigenous Organizations of the Amazon River Basin, and to watch him deliver a stirring speech to a room that included the leaders of Norway and Indonesia. It was the first time an indigenous leader was given such an opportunity at the U.N.

5. US-CHINA LEADERSHIP ON CLIMATE?

Fred Krupp, EDF President: On September 23, EDF hosted a meeting with Chinese government officials, who reiterated their plans for a national carbon market in China, and said they’re interested in working with the United States to combat climate change. Later that day, I heard President Obama speak at the United Nations General Assembly.

I was encouraged and inspired to hear him say that the U.S. and China, “as the two largest economies and emitters in the world … have a special responsibility to lead.”

6. CLIMATE-SMART AGRICULTURE – NO LONGER JUST A CATCH PHRASE

Richie Ahuja, Regional Director, Asia: After a three-year global effort involving a large number of diverse stakeholders, we finally launched the Global Alliance for Climate-Smart Agriculture. Its purpose: To help the world figure out how to feed a growing population on a warming planet.

The alliance will use the latest technology and draw on the experience of farmers to improve livelihoods and build resilience – while at the same time cutting greenhouse gas emissions and other environmental impacts. This is climate action that truly counts.

7. CORPORATIONS ARE ON BOARD

Ruben Lubowski, Chief Natural Resource Economist: One thing that made the Climate Summit unique was that it included corporate leaders, not just heads of state. In addition to signing the New York Declaration on Forests, chief executives of major global companies that buy and trade palm oil and other tropical commodities that drive deforestation – companies like Cargill, Unilever, and Wilmar – spoke strongly about their plans to change sourcing practices.

Already, companies accounting for about 60 percent of the world’s palm oil trade have made commitments to eliminate deforestation from their products.

8. CALIFORNIA DOES IT AGAIN

Derek Walker, Associate Vice President, U.S. Climate and Energy: California has served as a proving ground for climate change policies that can be adapted by other jurisdictions, whether in the U.S. and abroad – and there’s more to come. My highlight for the week: when Gov. Jerry Brown said that California will set a post-2020 emissions limit and ratchet up its 33-percent renewable standard – already the nation’s top target.

California Air Resources Board Chair Mary Nichols also told us that the state is preparing to develop rules on how to incorporate forest carbon credits into its carbon market – a key step toward reducing deforestation.

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UN talks produce a strong agreement on forest protection, but otherwise déjà vu

This post originally appeared on EDF’s Climate Talks blog. 

Around midnight on Friday, November 25 – several hours after the annual UN climate conference was scheduled to have ended – I stood in the hallway of a temporary conference center erected on the soccer pitch of the National Stadium in Warsaw, watching the scrum of the climate talks in their final hours.

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Nat Keohane is EDF's Vice President for International Climate and a former economic adviser to the Obama administration.

NGO representatives were pitching stories and sharing intelligence with reporters, negotiators were huddling in groups or dashing off to last-minute bilateral meetings, and everyone was scrounging for coffee or late-night sandwiches to power another all-nighter.

The talks appeared on the brink of failure as countries deadlocked over the core questions of which countries should be obligated to reduce emissions and who should pay for it. In the end, as nearly always happens, an agreement was reached and the talks didn’t fall apart. That has become a typical pattern at these annual UN talks.

If the scene was familiar, the headlines that came out of the talks were familiar as well: Developing Nations Stage Protest at Climate Talks (NY Times); UN presses rich nations to act on climate funds (FT); Modest deal breaks deadlock at UN climate talks (AP); UN talks limp towards global 2015 climate deal (Reuters); Climate Finance Battle Shows Expectation Gap at UN Talks (Bloomberg).

But despite the dulling sense of déjà vu that Friday night in Warsaw, there was already reason for celebration. That’s because earlier that same evening – in a break with past years – the Conference of the Parties (or COP, as the talks are formally labeled) had already held the first part of its closing plenary to formally adopt decisions on areas in which negotiators could agree.

During that session, the COP agreed on a comprehensive agreement on Reducing Emissions from Deforestation and forest Degradation (REDD+) – leading to what the UN, countries, media outlets and NGOs all identified as a bright spot in the negotiations.

Forest protection remains a crucial part of the climate action toolkit

With deforestation responsible for about 15% of the world’s manmade greenhouse gas emissions – that’s more than all the cars and trucks in the world – we can’t solve climate change without saving our forests. REDD+ creates economic incentives to reward countries and jurisdictions that reduce emissions from deforestation and degradation below rigorously defined baselines.

The Warsaw Framework for REDD+ Action, as it’s formally known, sets down deep roots for REDD+, and sends a clear signal that it will continue to be a crucial tool for protecting forests and the people who depend on them, by:

  1. ensuring a rigorous, transparent framework for measuring emissions reductions from reduced deforestation;
  2. affirming that financial flows will be “results-based,” meaning that REDD+ compensation will be tied to demonstrated results; and
  3. creating a structure for forest nations to share views on the effectiveness of REDD+ implementation.

The REDD+ outcome was a “big step forward,” my colleague and EDF REDD+ expert Chris Meyer told E&E News, explaining:

We had a foundation for the house; now we have the walls, the plumbing, the electricity and the roof for REDD+.

On the issue of forest protection, at least, the UN talks did exactly what they are supposed to do: they reaffirmed work that had been done in previous years, built upon it in negotiating sessions held over the past twelve months, and made the final push to resolve key issues of disagreement in the two weeks of talks in Warsaw.

This comprehensive package of decisions provides a structure for countries to develop REDD+ programs at a national level, and take advantage of the approximately $700 million per year already pledged for REDD+ program preparation and to pilot results-based payments.

The REDD+ agreement also opens a path for the International Civil Aviation Organization and other bodies that are considering developing market-based mechanisms, whether multi-lateral, national or regional, to bring REDD+ into their systems with an imprimatur of a multilateral standard.

Beyond REDD+, little formal progress

Outside of REDD+, the talks were notable more for what didn’t happen than what did. The talks didn’t make significant progress, although they managed not to collapse.

With two years until a new agreement is supposed to be reached in Paris, countries didn’t set a clear template for what they need to announce in terms of emissions reductions targets, or when they need to announce the targets. Nor did they make much progress on the key issue of climate finance – although surprisingly constructive talks on the difficult issue of compensating the world’s most vulnerable countries for the impacts of climate change reached a compromise agreement to create the Warsaw International Mechanism on Loss and Damage to address the issue going forward.

On two important but lower-profile issues, there appeared to be signs of common ground behind closed doors – but these didn’t translate into movement in the formal negotiations.

On the issue of agriculture, useful conversations occurred that could help integrate agriculture into a more holistic discussion of the role of the land sector in responding to climate change, even if no formal progress were made in the context of these negotiations.

On the critical question of how to construct an international climate architecture that promotes and supports ambitious national action through carbon markets, countries put some useful options on the table – but could not reach a decision, instead deferring further discussion until next June.

To be sure, we never expected much to happen at these Warsaw talks. They were always going to be more about headaches than headlines.

But it’s hard to escape the sense that countries spent two weeks reopening issues that we thought had been resolved and fighting the same battles that have been fought before, only to make a last-minute lunge in the final hours to finish barely ahead of where they started.

A good example is on the key question of participation. Since the 1992 UN Framework Convention on Climate Change, which listed the world’s advanced economies in an appendix or “annex,” the distinction between “Annex I” and “Non-Annex I” countries has been a central point of contention. Five years later, the Kyoto Protocol assigned emissions reductions only to “Annex I” countries. Eliminating the so-called “Kyoto firewall” has been a red line of the U.S. and other advanced economies, which point to the rapid growth in major emerging economies such as China and India, and the concomitant rise in their greenhouse gas emissions.

In 2011, at the UN talks in Durban, South Africa, countries declared that a new agreement, to be finalized in Paris in 2015, would be “applicable to all Parties” – a phrase widely understood to mean that the Annex I/Non-Annex I distinction would be erased. But the first draft of the negotiating text in Warsaw hardly referred to Durban and instead used the different term “broad participation.” That opening salvo didn’t last, and the final text reaffirmed the Durban agreement – but not before significant energy had gone into re-fighting that battle.

The world outside the UN talks

With little to show for their two weeks of long days and all-nighters, negotiators have left themselves a lot to do over the next two years to reach a meaningful outcome in Paris.

However, countries and other actors don’t need to wait for an international agreement in 2015 to start addressing climate change. It was clear, through events on the sidelines of the negotiations and conversations with other attendees at the conference, that cities, states, countries and regions around the world have already started moving to cut their emissions and adapt to climate change.

Some of the most interesting side events highlighted the progress made in China on provincial carbon trading pilots and explored how the Chinese experiments could learn from California’s experience in building a successful carbon market. And the Climate and Clean Air Coalition – a group of more than 70 state and nonstate partners working together to reduce short-lived super-pollutants like methane, black carbon, and HFCs – also announced important progress. Those side events were a reminder that the UN talks, while they remain important, are not the only game in town.

That’s a good thing, and a reason for optimism. Because with the damaging impacts of climate change already apparent in the United States and around the world, the world urgently needs near-term action to turn the corner on global emissions and put us on a downward trajectory toward climate safety.

Also read EDF's press release on the outcome of the Warsaw negotiations: Strong agreement to protect forests highlight of UN climate talks.

Posted in International, News, Policy| Comments are closed

New IEA Report Sets a Road Map to a Cleaner Energy Future

Today, the International Energy Agency released a special report of its World Energy Outlook, entitled Redrawing the Energy-Climate Map. The report is notable not only for its substantive conclusions – but for what it signifies.

First, the substance:

The report starts by emphasizing that energy-related CO2 emissions are a crucial driver of global warming, that they are increasing rapidly, and that as a result the world is not on target to keep concentrations of greenhouse gases below the level that would provide even a fifty-percent probability of limiting the increase in average global temperatures to two degrees – a commonly cited benchmark to prevent the worst impacts of climate change.  Standard fare, perhaps – but noteworthy nonetheless coming from the world’s leading energy authority.

A road map toward a more secure future

The key finding of the report — what makes it required reading — is the analysis of what the IEA calls its “4-for-2˚C scenario.”

The IEA identifies a package of four policies that could keep the door open to 2 degrees through 2020 – at no net economic cost to any individual region or major country, and relying only on existing, widely available technologies:

  1. Specific energy efficiency measures in transport, buildings, and industry (1.5 GT savings in 2020/49% of the total package)
  2. Limiting construction and use of the least-efficient coal-fired power plants (640 MT/21%)
  3. Minimizing methane emissions from upstream oil and gas production (550 MTCO2e/18%)
  4. Accelerating the partial phaseout of fossil fuel subsidies (360 MT/12%)

The IEA estimates that these four measures would reduce energy-related GHG emissions by 3.1 GT CO2-eq in 2020, relative to IEA's "New Policies" reference scenario – corresponding to 80% of the reduction required to be on a 2-degree path.

Take a look at this chart, from IEA's report, that summarizes the policies:

(Source: World Energy Outlook Special Report, 2013)

Here's a second chart, also from IEA's report. This one makes the key point about no net economic costs:

(Source: World Energy Outlook Special Report, 2013)

Four policies, using widely available technologies, imposing no net economic cost on any individual region or major country, that put the world in the position to make the turn to climate safety.

That’s the headline.

The cost of delay

IEA's report also discusses the vulnerability of the energy sector to climate change, and emphasizes that delaying climate action will drive up the costs of meeting a 2 degree target later.  The report estimates that putting off action until 2020 would trim near-term investment by $1.5 trillion in the short run – but at the cost of requiring an additional $5 trillion to be spent in subsequent years.  In present-value terms, using a 5% discount rate, delay doubles the cost of action: from $1.2 trillion to $2.3 trillion.

This is an argument that we at EDF — and others — have been making for some time. But it is a crucial one nonetheless – and the IEA analysis gives some added analytical weight to the argument.

Not an oil shock, but a climate shock

These findings are especially welcome coming from IEA, a world-respected authority on energy markets and policy that was founded to facilitate international coordination among oil-consuming countries.  Indeed, the messenger may be nearly as important as the message.  What launched the IEA was the 1973-4 oil crisis.  Now, nearly forty years later, the IEA report makes clear that the real energy-related threat to economic prosperity is not an oil shock, but a climate shock.

Back to the big picture

To be sure, the four policies analyzed in this report won’t fully suffice to address climate change in the long run: indeed, much more ambition will be needed.

Under the “4-for-2˚C” scenario, the IEA estimates that world energy-related emissions will peak and start to decline before 2020 – but we’ll still need concerted action on a global scale to get greenhouse gas emissions onto a steepening downward trajectory.

Take a look at one more chart from IEA's report:

(Source: World Energy Outlook Special Report, 2013)

Acknowledging this point, IEA's report underscores the importance of continued innovation in low-carbon technologies in transport and power generation (including carbon capture and storage), and highlights the vital importance of a long-term carbon price.

Beyond the scope of the report, there’s much to be done outside the energy sector – in particular by curbing tropical deforestation, and promoting the spread of agricultural practices that can achieve the “triple win” of greater productivity, greater resilience to climate, and lower environmental impacts (including GHG emissions).  And all of these efforts must be carried out in tandem with the overarching challenge of promoting broad-based economic prosperity around the globe, as President Jim Yong Kim of the World Bank has repeatedly emphasized.

But the bottom line is that one of the most hopeful publications on climate change you’ll read this year has come from the International Energy Agency, of all places.  Here is a road map toward a cleaner, more secure future.  Now it’s up to us to take it.

Posted in Economics, Energy, Greenhouse Gas Emissions, News, Policy| Read 1 Response

The Evidence Continues to Pile Up: Climate Legislation is Affordable. The Time to Cap Carbon is Now.

As the debate on climate legislation gears up in the Senate, evidence continues to accumulate that a climate bill will be affordable and provide a much-needed boost to our economy.

A new analysis released by the Department of Energy’s Energy Information Administration (EIA) of the comprehensive climate and energy legislation introduced by Senators Kerry and Lieberman (the American Power Act or APA), confirmed that under the bill, the American economy would continue to grow robustly, and the cost to households would be minimal.  Here are the facts:

  • Under climate policy, U.S. GDP would grow by a third over the period 2008-2020, and would nearly double by 2035. A “business as usual” scenario with no climate policy would add only a tiny fraction to output — just two-tenths of a percent (0.2%) in total over the next two decades.  To put this in perspective, GDP is projected to reach $27.8 trillion by New Year’s Day 2035 under business as usual; under climate policy, it will get there by the middle of February.
  • Under climate policy, U.S. employment is projected to grow 8% by 2020 and 22% by 2035, relative to 2008.
  • The estimated cost to the average American household is $167 in the year 2020 (in 2009 dollars) – less than six dollars a month per person.  (The EIA also reports an annualized figure of $206 over the entire period.)
  • Estimated electricity prices would be only 4% higher in 2020 under the policy than they would be without it.
  • Allowance prices in 2020 and 2030 are even lower than EIA projected under the House-passed climate legislation (HR2454).

The EIA’s analysis also points out that the vast majority of reductions would come from the electric power sector.  That’s relevant to current debates, as the Senate is currently considering a scaled-down version of the cap included in APA that would only cover the power sector.  Under such a policy, allowance prices would be lower — making household costs and other economic impacts even smaller.

All of EIA’s projections are consistent with an array of estimates from the most credible analyses available, in particular, the Environmental Protection Agency (EPA) and the Congressional Budget Office (CBO).  EPA’s estimates for the cost to the average American household are comparable to EIA’s (amounting to just a few dollars a month for the average individual American).  And just last week, CBO reported that APA would reduce future deficits by approximately $19 billion over the next decade.  It also estimated even lower allowance prices under APA than under HR2454, which CBO also projected would cost the average American just a few dollars a month by the year 2020.

That is a small investment in a clean energy economy that will create jobs, reduce pollution and increase America’s energy security.  And it’s always important to remember that all of these analyses only look at one side of the ledger – they do not take into account the huge costs of inaction on climate change.

Studies like those from EIA, EPA, and CBO confirm that we can readily afford a comprehensive climate and energy bill that would boost our economy, reduce our dependence on imported oil and help avert dangerous climate change.  There is no more time to waste – the Senate needs to pass a cap on carbon now.

Posted in Climate Change Legislation, Economics, News, Policy| Comments are closed

New evidence on the job impacts of climate policy: Why now is the right time to cap carbon

This was originally posted on the Huffington Post.

Opponents of climate legislation often claim that now is the wrong time to put a price on carbon, with the economy just emerging from a recession.  But a must-read study released today by the well-respected, nonpartisan Peterson Institute for International Economics shows that the reverse is actually true: passing climate legislation would provide the economy with a much-needed shot in the arm.

Trevor Houser and his co-authors use a widely respected economic model to analyze the impact on the U.S. economy of the American Power Act, the energy and climate legislation introduced last week by Senators Kerry and Lieberman. The study estimates that the legislation would spur investment in the electric power sector — in turn adding over 200,000 jobs to the economy during the next decade relative to a "business as usual" scenario without policy. The reason is that when labor and capital are underemployed, as they are now, a policy that spurs new investment in the private sector will create jobs rather than simply taking them from other sectors. This lends quantitative support to the argument I've been making for over a year, which is that the fragile state of the U.S. economy strengthens the case for a cap on carbon rather than weakening it.

To understand why this is important, it helps to step back and think about what we know about the link between climate legislation and employment. The usual debates about the job impacts of climate legislation tend to follow parallel tracks that never intersect, with opponents focusing on jobs that might be lost, and proponents focusing on jobs that would be gained — but little analysis of what the net impact would be. So what would that net impact be?

There are a couple of ways to think about this issue, depending on what time frame you are looking at. In the long run, the American economy is likely to gain from taking the lead in the clean energy revolution, just as our economy has always benefited from technological leadership. The world is heading onto a low-carbon path, and huge markets await for the firms that are able to develop and produce new technologies that generate renewable energy and promote energy efficiency. That provides a strong economic argument for a market-based cap on carbon, while will give American firms a powerful incentive to figure out new and better ways of cutting emissions.

What about the short run? In general, the U.S. economy — like any market economy — tends to hover at some natural level of "full employment" that is determined by fundamentals like productivity, technological change, and the size of the labor force. This suggests that the main effect of a price on carbon will not be to change the overall level of employment, but to shift labor (and other resources like capital) away from carbon-intensive sectors and into cleaner sectors. Some sectors win, some sectors lose, but the overall level of employment stays the same.

The key problem with this logic is that we are clearly not in a period of "full employment." Even though the economy seems to be slowly emerging from the recession, unemployment is still very high. And there is capital sitting on the sidelines as well, held back not only by the recent crisis but also by uncertainty over the strength of the recovery and over the regulatory environment.

When the economy is not in full employment, the picture changes fundamentally. Instead of reallocating resources from one sector to another, a price on carbon could have a positive impact by spurring demand for investment — leading to net job creation, even in the short run.

This is precisely what the Peterson Institute's study forecasts would happen under the American Power Act. A cap on carbon would create powerful demand for new investment in clean energy, especially in the electricity sector. The Peterson Institute study projects that annual investment in the sector in the next ten years would rise by 50% as a result of the legislation — an increase of nearly $11 billion a year. Precisely because our economy is operating below full employment, the result would be a net job increase of 203,000 jobs over the next decade, relative to the no-policy "business as usual" scenario — even taking into account the effect of higher prices on fossil fuels.  This is a small number in percentage terms, but it underscores an important point about the direction of the job impact in the short run — and contradicts claims that climate policy will slow our economic recovery.

This isn't just theoretical. In a column in the New York Times last month, David Brooks reported that if climate legislation passed, the major electric power company FPL Group would likely invest roughly $3 billion more per year in wind and solar power. Similarly, NRG Energy would triple its new clean generation capacity. That's the kind of investment that can produce real jobs in the short run.

I'll have more to say about other conclusions of the Peterson Institute study in coming blog posts. In the meantime, Dave Roberts at Grist has a great take on it along with a summary of the key findings.

UPDATE

I revised this post on 5/27/2010 to correct some potentially confusing language on my part (and to make a few other edits for style and exposition in the process). The Peterson study estimates that the American Power Act would increase average annual employment by 203,000 jobs over the next decade (2011-2020). In other words, according to their analysis, there will be about 200,000 more jobs in each year. My original post said "203,000 jobs per year," which could be read to suggest that there would be an additional 203,000 jobs added to the economy each year, for a total of 2 million jobs over ten years; that is not what the study finds, and I have revised the post to clarify that point. Meanwhile, for consistency, I also revised the post to cite estimates of investment for the same period (2011-2020) rather than over the whole duration of the study (2011-2030).

Posted in Climate Change Legislation, Economics, Science| Comments are closed
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