Climate Policy

A Game of Climate Chicken: Can EPA Regulate Greenhouse Gases Before the U.S. Senate Ratifies the Kyoto Protocol?

EPA's legal authority to regulate greenhouse gas emissions under the Clean Air Act is reviewed. While EPA clearly does not have the authority to implement the precise terms of the Kyoto Protocol, arguments could be put forward to support the Agency's claim that it has the authority to control such pollutants. However, the Clean Air Act's legislative history, a textual analysis of the Act, judicial precedents and political considerations all provide compelling arguments for the EPA to seek additional legislation before attempting to regulate greenhouse gases. Even a generous interpretation of existing provisions would prohibit trading in greenhouse gas emissions permits and therefore contradicts the Administration's own preferred approach to addressing climate change which favors employing market mechanisms to help reduce the costs of carrying out reductions. Moreover, the participation of developing countries in an emissions control regime, which has been stipulated by the Senate and endorsed by the Administration, would also remain unaffected since the Clean Air Act is only designed to address local and regional pollution. Concerns over backdoor implementation of the Kyoto Protocol and EPA's attempts to regulate emissions help explain the political attacks on the agency's efforts to pursue research, education, and non-regulatory solutions to the climate change problem.

A General Equilibrium Analysis of Climate Policy for Aviation

Regulation of aviation’s contribution to the global problem of climate change is increasingly likely in the near term, but the method agreed upon by most economists—a multi-sectoral market-based approach such as a cap and trade system—is opposed by industry stakeholders. An efficient economy-wide policy would determine the optimal level of sectoral emissions reductions, but industry groups have instead proposed independent aviation-sector goals for carbon mitigation and technology adoption. This thesis asks the question: how much should airlines reduce their emissions, and which technologies will be necessary to achieve those reductions.

In order to comprehend the problem of mitigation costs and outcomes within the context of the global economy, I introduce an aviation-resolved version of the MIT Emissions Prediction and Policy Analysis model; a computable general equilibrium model of the global economy. In EPPA-A, the social accounting matrix is re-balanced to include aviation, a non-unity income elasticity of demand is introduced, and substitution elasticity parameters are estimated. Additionally, I include an additional module to analyze the potential non-market impacts of government infrastructure on aviation emissions by explicitly modeling an advanced Air Traffic Control sector.

Several policy scenarios are applied to the model including: an idealized economy- wide cap and trade system in each developed nation or region, and an aviation-sector- only cap within an economy-wide cap, both with and without trading enabled between the aviation cap and the economy-wide cap. Each policy scenario is compared to a business-as-usual case, and relative welfare loss under each policy is calculated. The business-as-usual and economy-wide cap policies are also run with the advanced Air Traffic Control module enabled, and the efficacy is determined.

I find that in the context of total economic welfare, the method of aviation regulation is of little significance; the differences in results among the different policy scenarios are very small (on the order of 0.002% in the U.S.). However, the price of aviation and sector output are more responsive. When trading between an aviation- sector-only cap and the economy-wide cap is enabled, outcomes are practically identical. When trading is not allowed, the price of aviation increases 21.8%, and output falls 32.8% compared to the economy-wide policy-only case.  I find that national welfare outcomes are sensitive to international trade, and border adjustments for aviation emissions are important. Finally, the efficacy of advanced Air Traffic Control infrastructure, and the economic welfare gained or lost, is sensitive to the parameter estimates which exhibit high uncertainty. I find that the low-efficacy parameters result in slightly lower fuel intensity, but are also net-welfare decreasing, while the high parameter estimates increase welfare, but result in an infeasible reduction in sectoral energy intensity.

A general equilibrium analysis of the effects of carbon emissions restrictions in a developing country

About the book: Traditional tools of analysis that focus on particular commodities or sectors, a particular time frame, and aggregate diverse socioeconomic groups are ill-suited to analyze the consequences of the economic reforms of the last ten years. This volume shows the greater power and relevance of applied general equilibrium methods. Through discussion of several major policy issues---agricultural and food policy, economies of scale in production and the associated market imperfections, macrostabilization programs, and modeling intertermporal tradeoffs---the contributors present work representative of the major trends in applied general equilibrium modeling of developing-country issues. Policy analysis using a rich variety of static, recursive, and intertemporal dynamic models is illustrated with problems from a number of developing countries in Africa, Asia, and Latin America. The countries studies range widely in their institutional features, stages of development, and economic size.

A Global Carbon Market: From Kyoto to Copenhagen via the EU ETS

It is still unclear what a post-Kyoto international regime to tackle climate change will look like. Negotiations on a post-2012 framework are revisiting questions that arose when the Kyoto Protocol was put in place – such as how targets can best be shared out, and how the different interests of rich and poor countries can be addressed – but policymakers must also face new realities. Scientific evidence shows that the climate policies formulated so far are unfit to deal with the magnitude of the challenge.

This book looks realistically at the options for a deal to succeed the Kyoto Protocol. It sets out some of the main ingredients that will have to be included for finalisation of an economically rational agreement that stands a real chance of addressing the threat to the climate system. It critically analyses the European Union's climate policies before reviewing the key elements of such an agreement: carbon markets, flexible mechanisms for transferring money and technology to developing countries, innovation, and the effective enforcement of a global climate deal.

A Global Interactive Chemistry and Climate Model

In order to elucidate interactions between climate change and biogeochemical processes and to provide a tool for comprehensive analysis of sensitivity, uncertainty, and proposed climate change mitigation policies, we have developed a zonally averaged two-dimensional model including coupled biogeochemical and climate submodels, as a part of an integrated global system model. When driven with calculated or estimated trace gas emissions from both anthropogenic and natural sources, it is designed to simulate centennial-scale evolution of many radiatively and chemically important tracers in the atmosphere. Predicted concentrations of chemical species in the chemistry submodel are used interactively to calculate radiative forcing in the climate submodel, which, in turn, provides winds, temperatures, and other variables to the chemistry submodel.
        Model predictions of the surface trends of several key species are close to observations over the past 10-20 years. Predicted vertical distributions of climate-relevant species, as well as seasonal variations, are also in good agreement with observations. Runs of the model imply that if the current increasing trends of anthropogenic emissions of climate-relevant gases are continued over the next century, the chemical composition of the atmosphere will be quite different in the year 2100 than that currently observed. The differences involve not only higher concentrations of major long-lived trace gases such as CO2, N2O, and CH4, but also about 20% lower concentrations of the major tropospheric oxidizer (OH free radical), and almost double the current concentrations of the short-lived air pollutants CO and NOx.

A Numerical Investigation of the Potential for Negative Emissions Leakage

Emissions restrictions in one region may decrease emissions elsewhere (negative leakage), as increased demand for capital and labor to abate emissions in constrained regions may reduce output in unconstrained regions. We investigate leakage in computable general equilibrium (CGE) models under alternative fossil fuel supply elasticity values and factor mobility assumptions. We find that fossil fuel supply elasticities must be equal or close to infinity to generate net negative leakage. As empirical estimates for fossil fuel supply elasticities are less than 1, we conclude that leakage estimates from CGE models are unlikely to be negative.

© 2013 American Economic Association

A Systems Approach to Evaluating the Air Quality Co-Benefits of US Carbon Policies

Because human activities emit greenhouse gases (GHGs) and conventional air pollutants from common sources, policy designed to reduce GHGs can have co-benefits for air quality that may offset some or all of the near-term costs of GHG mitigation. We present a systems approach to quantify air quality co-benefits of US policies to reduce GHG (carbon) emissions. We assess health-related benefits from reduced ozone and particulate matter (PM2.5) by linking three advanced models, representing the full pathway from policy to pollutant damages. We also examine the sensitivity of co-benefits to key policy-relevant sources of uncertainty and variability. We find that monetized human health benefits associated with air quality improvements can offset 26-1050% of the cost of U.S. carbon policies. More flexible policies that minimize costs, such as cap-and-trade standards, have larger net co-benefits than policies that target specific sectors (electricity and transportation). While air quality co-benefits can be comparable with policy costs for present-day air quality and near-term U.S. carbon policies, potential co-benefits rapidly diminish as carbon policies become more stringent.

© 2014 Nature Publishing Group

Absolute versus Intensity Limits for CO2 Emission Control Performance under Uncertainty

Debates over post-Kyoto Protocol climate change policy often take note of two issues: the feasibility and desirability of international cooperation on climate change policies, given the failure of the United States to ratify Kyoto and the very limited involvement of developing countries, and the optimal timing of climate policies. In this book essays by leading international economists offer insights on both these concerns. The book first considers the appropriate institutions for effective international cooperation on climate change, proposing an alternative to the Kyoto arrangement and a theoretical framework for such a scheme. The discussions then turn to the stability of international environmental agreements, emphasizing the logic of coalition forming and demonstrating the applicability of game-theoretical analysis. Finally, contributors address both practical and quantitative aspects of policy design, offering theoretical analyses of such specific policy issues as intertemporal carbon trade and implementation of a sequestration policy, and then by formal mathematical models examining policies related to the rate of climate change, international trade and carbon leakage, and the shortcomings of the standard Global Warming Potential index.

Absolute vs. Intensity Limits for CO2 Emission Control: Performance Under Uncertainty

We elucidate the differences between absolute and intensity-based limits of CO2 emission when there is uncertainty about the future. We demonstrate that the two limits are identical under certainty, and rigorously establish their relative attractiveness under two criteria: preservation of expectations-the minimization of the difference between the actual level and the initial expectation of abatement associated with a one-shot emission target, and temporal stability-the minimization of the variance of abatement due to fluctuations in emissions and GDP over time. Empirical tests of these theoretical propositions indicate that intensity caps are preferable for a broad range of emission reduction commitments. This finding is robust for developing countries, but is more equivocal for developed economies.

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