Climate 411

The Silver Bullet Of Climate Change Policy

(This post originally appeared on Forbes)

By Bob Litterman and Gernot Wagner

Whenever the conversation turns to climate change, someone is sure to opine that there’s no silver bullet. The issue is simply too complex to have one solution. When you focus on all the changes that need to occur to reduce greenhouse gas emissions globally it seems like a multifaceted approach is the only way forward.

Most of the world’s vexing problems share that feature. Mideast peace, nuclear non-proliferation, Eurozone stability, and plenty of other national security problems have no single right plan of attack. Some past plans might have brought us tantalizingly close to a seeming solution, but then reality started interfering once again, reconfirming the complexity of it all.

Climate change must surely be in that category. No single country, no single technology, no single approach can seemingly solve this one for us once and for all. Picking a single technology will almost inevitably end in some form of disappointment. Bureaucrats, the saying goes, ought not to try to pick winners. Leave that to venture capitalists for whom failure is a way of life. For every Apple and Facebook, there are dozens who never make it out of the garage. And clean technology doesn’t yet even have a single Apple and Facebook as the standout approach revolutionizing the field.

Source: NYU

It turns out, though, that how you frame the issue is crucial. If you think like an engineer there are dozens of challenges. If you think like an economist, there is one. It’s guiding the ‘invisible hand’. How can you create the appropriate incentive to decrease the pollution that’s causing climate change? For that, the government need not be in the business of picking winners at all. What it should—and can—do is identify the loser that’s been clear for decades: greenhouse gas pollution. And the solution is equally clear: create incentives to reduce emissions by pricing it. If we make this one change, most other actions that are needed will follow.

That’s what the European Union has done by capping carbon emissions from its energy sector, including large industrials, covering almost half of total carbon emissions. That’s what California is doing with over 80 percent of its total global warming emissions. It’s what China is experimenting with in seven city and regional trials, including in Beijing and Shanghai. All these systems put a price on greenhouse gas pollution.

On the other side of the ledger, there are still much larger incentives to consume fossil fuels in many other countries. The International Energy Agency estimates that global subsidies are well over $500 billion. These subsidies, which incentivize emissions, sadly dwarf the paltry incentives to reduce them. Free marketeers, small government advocates, and others who dislike distorting government subsidies should be appalled at the tax money poured into fossil fuels.

There’s one simple principle that’s been around in economics for so long that no economist worth his or her degree would question the conclusion: increase the price, watch the quantity demanded go down. It’s such a universal truism that economists call it the “Law of Demand.” Generations of graduate students have estimated the effects of price on demand for anything from the generic widget to demand for car miles driven. People may be irrational at times, but one thing that we know for sure is that they respond to incentives.

Everything we know from decades of the study of human behavior would lead us to believe that carbon pollution will go down as the price on emissions increases. The only interesting question is by how much.

The prescription then for anyone seriously concerned about climate change is simple: price carbon to the point where its now unpriced damages are incorporated into the price, and get out of the way. It’s simple. It works. It’s conservative to the core.

It’s also a silver bullet solution if there ever was one.

Bob Litterman is a Partner at Kepos Capital, LP. Gernot Wagner is a senior economist at the Environmental Defense Fund.

Posted in Economics, Greenhouse Gas Emissions, Policy / Read 1 Response

Climate Legislation Link Round-Up

With climate legislation moving to a vote this week in Chairman Henry Waxman’s Energy and Commerce Committee, it’s encouraging to see thoughtful and honest arguments and posts covering the various angles of this historic step forward. 

Paul Krugman’s The Perfect, the Good, the Planet posits that while imperfect, Waxman-Markey is our best chance at addressing climate change.  Joe Romm sets the record straight on Europe’s carbon trading efforts in his recent post, and Daniel Weiss provides a succinct update on where the legislation currently stands.

Did we leave anything out?  If so, post your links in the comments!

Posted in Climate Change Legislation, News / Read 2 Responses

Reactions to Gore’s Speech on Energy

Sheryl CanterThis post is by Sheryl Canter, an online writer and editorial manager at Environmental Defense Fund.

Yesterday, Former Vice President Al Gore gave a speech in Washington, D.C. that called for the U.S. to produce all electricity from carbon-free sources by 2018.

[kml_flashembed movie="http://youtube.com/v/dt9wZloG97U" width="425" height="350" wmode="transparent" /]

You can read the full transcript on WeCanSolveIt.org.

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Legal Action to Compel EPA Compliance with Supreme Court

Vickie PattonThis post is by Vickie Patton, Deputy General Counsel at Environmental Defense Fund, and a former attorney in EPA’s General Counsel’s office.

One year ago, the Supreme Court rejected the Environmental Protection Agency (EPA) claim that it lacked legal authority to regulate global warming pollution (for example, from vehicle tailpipes). EPA administrator Stephen Johnson promised a firm and prompt response to the high Court’s decision, but a year passed with no action.

Then on March 27, Johnson recanted his commitment.

So today, a broad coalition of 18 states, 3 cities, and 11 non-profit organizations (see full list*) took legal action to compel EPA to comply. The parties are led by the Commonwealth of Massachusetts, and include Environmental Defense Fund.

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Posted in Cars and Pollution, Greenhouse Gas Emissions / Read 13 Responses

IPCC's Final Words: Reduce Emissions

This post is by Lisa Moore, Ph.D., a scientist in the Climate and Air program at Environmental Defense.

This past week, IPCC’s Nobel Prize-winning scientists met in Valencia, Spain to write a synthesis of their three-volume report. The Summary for Policymakers of the Synthesis Report [PDF] makes it very clear that we need to act immediately to avoid the worst effects of global warming.

IPCC Chairman Dr. Rajendra Pachauri summarized the main message as follows: “Climate change is a serious threat to development everywhere. Today, the time for doubt has passed. The IPCC has unequivocally affirmed the warming of our climate system, and linked it directly to human activity. Slowing or even reversing the existing trends of global warming is the defining challenge of our age.”

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How the IPCC Got Started

This post is by Michael Oppenheimer, Ph.D., the Albert G. Milbank Professor of Geosciences and International Affairs in the Woodrow Wilson School and the Department of Geosciences at Princeton University. He also serves as science advisor to Environmental Defense.

The award of the 2007 Nobel Peace Prize to Al Gore and the Intergovernmental Panel on Climate Change (IPCC) is an important milestone in the journey toward a global warming solution, and it got me thinking about how the IPCC came to be. To some extent, it was thanks to a miscalculation by the Reagan Administration!

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