Climate Policy

Second-Best Instruments for Near-Term Climate Policy: Intensity Targets vs. the Safety Valve

Current proposals for greenhouse gas emissions regulations in the United States mainly take the form of emissions caps with tradable permits. Since Weitzman's (1974) study of prices vs. quantities, economic theory predicts that a price instrument is superior under uncertainty in the case of stock pollutants. Given the general belief in the political infeasibility of a carbon tax in the US, there has been recent interest in two other policy instrument designs: hybrid policies and intensity targets. We extend the Weitzman model to derive an analytical expression for the expected net benefits of a hybrid instrument under uncertainty. We compare this expression to one developed by Newell and Pizer (2006) for an intensity target, and show the theoretical minimum correlation between GDP and emissions required for an intensity target to be preferred over a hybrid. In general, we show that unrealistically high correlations are required for the intensity target to be preferred to a hybrid, making a hybrid a more practical instrument in practice. We test the predictions by performing Monte Carlo simulation on a computable general equilibrium model of the US economy. The results are similar, and we show with the numerical model that when marginal abatement costs are non-linear, an even higher correlation is required for an intensity target to be preferred over a safety valve.

© 2010 Elsevier

Sequential climate decisions under uncertainty: An integrated framework

In this paper, we present an integrated framework for structuring and evaluating sequential greenhouse gas abatement policies under uncertainty. The analysis integrates information concerning the magnitude, timing, and impacts of climate change with data on the likely effectiveness and cost of possible response options, using reduced-scale representations of the global climate system drawn from the MIT Integrated Global System Model. To illustrate the method, we explore emissions control policies of the form considered under the United Nations Framework Convention on Climate Change.

© Springer Netherlands

Sequential Climate Decisions Under Uncertainty: An Integrated Framework

In this paper, we present an integrated framework for structuring and evaluating sequential greenhouse gas abatement policies under uncertainty. The analysis integrates information concerning the magnitude, timing, and impacts of climate change with data on the likely effectiveness and cost of possible response options, using reduced-scale representations of the global climate system drawn from the MIT Integrated Global System Model. To illustrate the method, we explore emissions control policies of the form considered under the United Nations Framework Convention on Climate Change.

Sharing the Burden of GHG Reductions

The G8 countries propose a goal of a 50% reduction in global emissions by 2050, in an effort that needs to take account of other agreements specifying that developing countries are to be provided with incentives to action and protected from the impact of measures taken by others. To help inform international negotiations of measures to achieve these goals we develop a technique for endogenously estimating the allowance allocations and associated financial transfers necessary to achieve predetermined distributional outcomes and apply it in the MIT Emissions Prediction and Policy Analysis (EPPA) model. Possible burden sharing agreements are represented by different allowance allocations (and resulting financial flows) in a global cap-and-trade system. Cases studied include agreements that allocate the burden based on simple allocation rules found in current national proposals and alternatives that specify national equity goals for both developing and developed countries.

The analysis shows the ambitious nature of this reduction goal: universal participation will be necessary and the welfare costs can be both substantial and wildly different across regions depending on the allocation method chosen. The choice of allocation rule is shown to affect the magnitude of the task and required emissions price because of income effects. If developing countries are fully compensated for the costs of mitigation then the welfare costs to developed countries, if shared equally, are around 2% in 2020, rising to some 10% in 2050, and the implied financial transfers are large—over $400 billion per year in 2020 and rising to around $3 trillion in 2050. For success in dealing with the climate threat any negotiation of long-term goals and paths to achievement need to be grounded in a full understanding of the substantial amounts at stake.

Sharing the Burden of GHG Reductions

The G8 countries propose a goal of a 50% reduction in global emissions by 2050, in an effort that needs to take account of other agreements specifying that developing countries are to be provided with incentives to action and protected from the impact of measures taken by others. To help inform international negotiations of measures to achieve these goals we develop a technique for endogenously estimating the allowance allocations and associated financial transfers necessary to achieve predetermined distributional outcomes and apply it in the MIT Emissions Prediction and Policy Analysis (EPPA) model. Possible burden sharing agreements are represented by different allowance allocations (and resulting financial flows) in a global cap-and-trade system. Cases studied include agreements that allocate the burden based on simple allocation rules found in current national proposals and alternatives that specify national equity goals for both developing and developed countries. The analysis shows the ambitious nature of this reduction goal: universal participation will be necessary and the welfare costs can be both substantial and wildly different across regions depending on the allocation method chosen. The choice of allocation rule is shown to affect the magnitude of the task and required emissions price because of income effects. If developing countries are fully compensated for the costs of mitigation then the welfare costs to developed countries, if shared equally, are around 2% in 2020, rising to some 10% in 2050, and the implied financial transfers are large—over $400 billion per year in 2020 and rising to around $3 trillion in 2050. For success in dealing with the climate threat any negotiation of long-term goals and paths to achievement need to be grounded in a full understanding of the substantial amounts at stake.

About the book: The Harvard Project on International Climate Agreements seeks to identify key design elements of a scientifically sound, economically rational, and politically pragmatic post-2012 international policy architecture for global climate change. It draws upon leading thinkers from academia, private industry, government, and non-governmental organizations from around the world to construct a small set of promising policy frameworks and then disseminate and discuss the design elements and frameworks with decision-makers. For more information, see: http://belfercenter.ksg.harvard.edu/climate

© 2009 Cambridge University Press

Stabilization and global climate policy

Academic and political debates over long-run climate policy often invoke "stabilization" of atmospheric concentrations of greenhouse gases (GHGs), but only rarely are non-CO2 greenhouse gases addressed explicitly. Even though the majority of short-term climate policies propose trading between gases on a global warming potential (GWP) basis, discussions of whether CO2 concentrations should be 450, 550, 650, or perhaps as much as 750 ppm leave unstated whether there should be no additional forcing from other GHGs beyond current levels or whether separate concentration targets should be established for each GHG. Here, we use an integrated modeling framework to examine multi-gas stabilization in terms of temperature, economic costs, carbon uptake, and other important consequences. We show that there are significant differences in both costs and climate impacts between different "GWP equivalent" policies and demonstrate the importance of non-CO2 GHG reduction on timescales of up to several centuries. © 2004 Elsevier

Stabilizing Atmospheric CO2 Concentrations: Technical, Political, and Economic Dimensions

The goal of stabilizing atmospheric CO2 concentrations has, in recent years, emerged as an important theme in international forums and negotiations directed at the issue of climate change. In this paper, we frame the stabilization problem in terms of three dimensions, labeled ‘technical,’ ‘political,’ and ‘economic.’ To illustrate this conceptual scheme, we utilize the MIT Emissions Prediction and Policy Analysis model to explore an illustrative set of stabilization policies, each of which presumes substantive participation by OECD nations, but varies the level and timing of emissions controls by the rest of the world. The analysis suggests that international agreements for policy coordination may prove elusive, despite potential aggregate benefits for cooperation.

© 1999 Elsevier Science

Summary evaluation of the U.S. SO2 emissions trading program as implemented in 1995

About the book: Emissions trading has become a central feature of global efforts to control climate change. Its inclusion in the Kyoto Protocol to the Framework Convention on Climate Change represents a victory for advocates of market-based instruments and builds upon twenty years of experience with trading schemes in the United States. However, the concept is controversial and attempts to introduce similar trading schemes in Europe have met with mixed results.

Pages

Subscribe to Climate Policy