Reducing greenhouse gas emissions: Lessons from state climate action plans

We examine how state-level factors affect greenhouse gas (GHG) reduction policy preference across the United States by analyzing climate action plans (CAPs) developed in 11 states and surveying the CAP advisory group members. This research offers insights into how states approach the problem of choosing emissions-abatement options that maximize benefits and minimize costs, given their unique circumstances and the constellation of interest groups with power to influence state policy. The state CAPs recommended ten popular GHG reduction strategies to accomplish approximately 90% of emissions reductions, but they recommended these popular strategies in different proportions: a strategy that is heavily relied on in one state’s overall portfolio may play a negligible role in another state. This suggests that any national policy to limit GHG emissions should encompass these key strategies, but with flexibility to allow states to balance their implementation for the state’s unique geographic, economic, and political circumstances. Survey results strongly support the conclusion that decisions regarding GHG reductions are influenced by the mix of actors at the table. Risk perception is associated with job type for all strategies, and physical and/or geographic factors may underlie the varying reliance on certain GHG reduction strategies across states.     

Does the Bush Administration’s climate policy mean climate protection?

The paper analyzes the two major components of the Bush Administration’s climate policy, namely an emission intensity target and a technology strategy. The question is whether those components will generate net emission reductions that will contribute to the stabilization of the greenhouse gas concentration at a safe level in the long run. It comes out that the Bush Administration climate policy does not guarantee any meaningful contribution to climate protection. The lenient emission intensity target set by the Administration will most likely allow near term emissions to grow. In the long run, the Bush Administration places a big bet on future climate-friendly technological breakthroughs to cost-effectively compensate for the current and near term net emission increases. But the outcomes of those technological developments are uncertain in terms of emission reduction potential, cost, and timing. The way towards enhanced climate protection will most likely not come from the policies of the current Administration, but rather from the growing concern about the climate issue in Congress and at the state, corporate and civil society levels. These combined forces may raise the playing field at the federal level in the near future.     

America's bottom-up climate change mitigation policy

Many diverse actions can be taken to reduce greenhouse gas (GHG) emissions. Increasingly in the United States, policy-makers at sub-national levels are setting emission targets and implementing plans for sector-specific GHG reductions. In this paper, local, state, and regional policy actions in the US are inventoried and analyzed as to their potential effect on national emissions. The realization of all existing sub-national initiatives, as of September 2007, could stabilize US emissions at 2010 levels by the year 2020. The scale of these many decentralized mitigation actions, and their tendency to follow consistent steps, provide a counterpoint to oft-cited drawbacks of decentralized environmental policy. It also indicates that the US has been more committed to climate change mitigation than is generally acknowledged.     

The European climate change program: An evaluation of stakeholder involvement and policy achievements

In order to step up its efforts in reducing climate change, the European Commission (hereafter: the Commission) has launched in June 2000 its European climate change program (hereafter: ECCP). This wide-ranging stakeholder consultation aimed at identifying and developing all elements necessary for a European climate change strategy. The ECCP formally came to a close in April 2003.     

Economics of climate change under uncertainty: Benefits of flexibility

The selection of climate policy has to be made in an extremely uncertain environment: both benefits and costs of a particular climate policy are unknown and in the best case could be described by the probability distribution of various outcomes. Dominated in literature, the expected value approach to the cost–benefit analysis of climate policy under uncertainties relies on the aggregated estimation of various outcomes of climate policy weighted and averaged by probabilities. The variance, skewness, and kurtosis are important characteristics of uncertainties but can be easily lost in the process of aggregation. The real option analysis (ROA) explicitly accounts for both the expected value of underling assets and the variance of the expected value (as well as skewness and kurtosis that are important to describe a fat tail phenomenon). In the paper, we propose an application of the real option analysis in order to formulate rules for the selection of a climate policy (emission target) and estimate the economic value of the future flexibility created by interim climate policy, which may be corrected in the future in response to new knowledge that hopefully reduces uncertainties. The initially selected interim policy has an option value and methodology for its valuation presented in the paper.     

Energy security and climate change protection: Complementarity or tradeoff?

Energy security and climate change protection have risen to the forefront of energy policy—linked in time and a perception that both goals can be achieved through the same or similar policies. Although such complementarity can exist for individual technologies, policymakers face a tradeoff between these two policy objectives. The tradeoff arises when policymakers choose the mix of individual technologies with which to reduce greenhouse gas emissions and enhance energy security. Optimal policy is achieved when the cost of the additional use of each technology equals the value of the additional energy security and reduction in greenhouse gas emission that it provides. Such an approach may draw more heavily on conventional technologies that provide benefits in only one dimension than on more costly technologies that both increase energy security and reduce greenhouse gas emissions.     

Robust incentives and the design of a climate change governance regime

In building a governance regime to address climate change, should we prioritize the development of global institutions or national ones? This paper focuses on two neglected characteristics to inform the governance problem: the incentives for investment in low-carbon energy technology and the influence of historical policy volatility. Examining a case study of an important low-carbon energy technology, wind power, this study finds: (1) policy volatility has been substantial, (2) policy changes were uncorrelated across jurisdictions, suggesting that (3) investors could have substantially reduced their exposure to the risk of policy volatility by operating globally. While it also has downsides, a poorly coordinated international policy regime has the advantage of reducing the risk associated with a global policy failure. Beyond this case study, the importance of this positive effect depends on: the probability of policy failures in each country, the correlations among them, and the probability of a global policy failure.     

Energy security and climate change: How oil endowment influences alternative vehicle innovation

Fast growing global energy needs raise concerns on energy supply security and climate change. Although policies addressing the two issues sometimes benefit one at the expense of the other, technology innovation, especially in alternative energy, provides a win–win solution to tackle both issues. This paper examines the effect of oil endowment on the patterns of technology innovation in the transportation sector, attempting to identify drivers of technology innovation in alternative energy. The analysis employs panel data constructed from patent data on five different types of automobile-related technologies from 1990 to 2002: oil extraction, petroleum refining, fuel cells, electric and hybrid vehicles (EHV) and vehicle energy efficiency. I find that countries with larger oil endowments perform less innovation on refining and alternative technologies. Conversely, higher gasoline prices positively impact the patent counts of alternative technologies and energy efficiency technology. The findings highlight the challenges and importance of policy designs in international climate change agreements.     

Analysis of the EU policy package on climate change and renewables

In 2009 the EU decided to reduce greenhouse gas emissions at least by 20% in 2020 compared to 1990 and to supply 20% of energy needs by 2020 from renewable energy sources. This paper uses an energy model coupled with a non-CO₂ greenhouse gas model to assess the range of policy options that were debated to meet both targets. Policy options include trading of renewable targets, carbon trading in power plants and industry and the use of the Clean Development Mechanism to improve cost-efficiency. The models also examined fairness by analysing the distribution of emission reduction in the non-emission trading sector, the distribution of CO₂ allowances in the emission trading sector and the reallocation of renewable targets across Member States. The overall costs of meeting both targets range from 0.4% to 0.6% of GDP in 2020 for the EU as a whole. The redistribution mechanisms employed significantly improve fairness compared to a cost-effective solution.     

On the climate change effects of high oil prices

Some commentators claim that the oil market has achieved within a few months what international bureaucrats have struggled to obtain in a decade of international climate negotiations. The fallacy of the oil price argument is that substitutions and income effects that would result from higher oil prices are not considered. Using a computable general equilibrium model, we show that high oil prices cannot serve as substitutes for effective climate policies.     

The economics of climate change and the change of climate in economics

Economics is an unavoidable decision-making tool in the field of climate policy. At the same time, traditional economics is being challenged both empirically and theoretically by scholars in different fields. Its non-neutrality in dealing with climate-related issues—which is illustrated by the controversy over the “no-regret potential”—would thus call for an opening of economics to insights from other disciplines. Within that context, we show that an evolutionary-inspired line of thought coupled with a systemic and historical perspective of technological change provides a very insightful alternative to traditional economics. More particularly, it follows from that framework that the picture of the climate challenge ahead looks very different from what traditional economic analyses would suggest. For instance, the lock-in process makes it unlikely that traditional cost-efficient measures (such as carbon taxation or tradable emission rights) will be sufficient to bring about the required radical changes in the field of energy as they fail to address structural barriers highlighted in our approach.     

Eco-driving: An overlooked climate change initiative

The actions individuals can take to mitigate climate change are, in the aggregate, significant. Mobilizing individuals to respond personally to climate change, therefore, must be a complementary approach to a nation's climate change strategy. One action item overlooked in the United States has been changing driver behavior or style such that eco-driving becomes the norm rather than the exception. Evidence to date indicates that eco-driving can reduce fuel consumption by 10%, on average and over time, thereby reducing CO₂ emissions from driving by an equivalent percentage. A sophisticated, multi-dimensional campaign, going well beyond what has been attempted thus far, will be required to achieve such savings on a large scale, however, involving education (especially involving the use of feedback devices), regulation, fiscal incentives, and social norm reinforcement.     

Views on peak oil and its relation to climate change policy

Definitions of fossil fuel reserves and resources and assessed stock data are reviewed and clarified. Semantics explain a large stake of conflict between advocate and critical voices on peak oil. From a holistic sources–sinks perspective, limited carrying capacity of atmospheric sinks, not absolute scarcity in oil resources, will impose tight constraints on oil use. Eventually observed peaks in oil production in nearby years will result from politically imposed limits on carbon emissions, and not be caused by physical lack of oil resources. Peak-oil belief induces passive climate policy attitudes when suggesting carbon dioxide emissions will peak naturally linked to dwindling oil supplies. Active policies for reducing emissions and use of fossil fuels will also encompass higher energy end-use prices. Revenues obtained from higher levies on oil use can support financing energy efficiency and renewable energy options. But when oil producers charge the higher prices they can pump new oil for many decades, postponing peak oil to occur while extending carbon lock-in.     

The contribution of Chinese exports to climate change

Within 5 years, China's CO₂ emissions have nearly doubled, and China may already be the world's largest emitter of CO₂. Evidence suggests that exports could be a main cause for the rise in Chinese CO₂ emissions; however, no systematic study has analyzed this issue, especially over time. We find that in 2005, around one-third of Chinese emissions (1700 Mt CO₂) were due to production of exports, and this proportion has risen from 12% (230 Mt) in 1987 and only 21% (760 Mt) as recently as 2002. It is likely that consumption in the developed world is driving this trend. A majority of these emissions have largely escaped the scrutiny of arguments over “carbon leakage” due to the current, narrow definition of leakage. Climate policies which would make the developed world responsible for China's export emissions have both benefits and costs, and must be carefully designed to achieve political consensus and equity. Whoever is responsible for these emissions, China's rapidly expanding infrastructure and inefficient coal-powered electricity system need urgent attention.     

Innovative energy technologies and climate policy in Germany

Due to the size and structure of its economy, Germany is one of the largest carbon emitters in the European Union. However, Germany is facing a major renewal and restructuring process in electricity generation. Within the next two decades, up to 50% of current electricity generation capacity may retire because of end-of-plant lifetime and the nuclear phase-out pact of 1998. Substantial opportunities, therefore, exist for deployment of advanced electricity generating technologies in both a projected baseline and in alternative carbon policy scenarios. We simulate the potential role of coal integrated gasification combined cycle (IGCC), natural gas combined cycle (NGCC), carbon dioxide capture and storage (CCS), and wind power within a computable general equilibrium model of Germany from the present through 2050. These advanced technologies and their role within a future German electricity system are the focus of this paper. We model the response of greenhouse gas emissions in Germany to various technology and carbon policy assumptions over the next few decades. In our baseline scenario, all of the advanced technologies except CCS provide substantial contributions to electricity generation. We also calculate the carbon price where each fossil technology, combined with CCS, becomes competitive. Constant carbon price experiments are used to characterize the model response to a carbon policy. This provides an estimate of the cost of meeting an emissions target, and the share of emissions reductions available from the electricity generation sector.     

The impact of climate change on the European energy system

Climate change can affect the economy via many different channels in many different sectors. The POLES global energy model has been modified to widen the coverage of climate change impacts on the European energy system. The impacts considered are changes in heating and cooling demand in the residential and services sector, changes in the efficiency of thermal power plants, and changes in hydro, wind (both on- and off-shore) and solar PV electricity output. Results of the impacts of six scenarios on the European energy system are presented, and the implications for European energy security and energy imports are presented.Main findings include: demand side impacts (heating and cooling in the residential and services sector) are larger than supply side impacts; power generation from fossil-fuel and nuclear sources decreases and renewable energy increases; and impacts are larger in Southern Europe than in Northern Europe.There remain many more climate change impacts on the energy sector that cannot currently be captured due to a variety of issues including: lack of climate data, difficulties translating climate data into energy-system-relevant data, lack of detail in energy system models where climate impacts act. This paper does not attempt to provide an exhaustive analysis of climate change impacts in the energy sector, it is rather another step towards an increasing coverage of possible impacts.     

Uncertainty and endogenous technical change in climate policy models

Until recently endogenous technical change and uncertainty have been modeled separately in climate policy models. In this paper, we review the emerging literature that considers both these elements together. Taken as a whole the literature indicates that explicitly including uncertainty has important quantitative and qualitative impacts on optimal climate change technology policy.     

Directed technical change and differentiation of climate policy

This paper studies the cost effectiveness of climate policy if there are technology externalities. For this purpose, we develop a forward looking model that captures empirical links between CO₂ emissions associated with energy use, directed technical change and the economy. We find our most cost effective climate policy to include a combination of R&D subsidies and CO₂ emission constraints, although R&D subsidies raise the shadow value of the CO₂ constraint (i.e. CO₂ price) because of a strong rebound effect from stimulating innovation. Furthermore, we find that cost effectiveness of climate policy improves if it is differentiated between technologies. Even our rudimentary distinction between CO₂ intensive technologies and non-CO₂ intensive technologies lead to this result. Such differentiated climate policy encourages growth in the non-CO₂ intensive sectors and discourages growth in CO₂ intensive sectors by harnessing positive effects of technology externalities on total factor productivity in the former and letting the latter bear relatively more of the abatement burden. This result is robust to whether emission constraints, R&D subsidies or combinations of both are used as climate policy instruments.     

The role of technological availability for the distributive impacts of climate change mitigation policy

The impacts of the availability of low-carbon technologies on the regional distribution of mitigation costs are analyzed in a global multi-regional integrated assessment model. Three effects on regional consumption losses are distinguished: domestic measures, trade of fossil energy carriers and trade of emission permits. Key results are: (i) GDP losses and a redirection of investments in the energy system towards capital-intensive technologies are major contributions to regional consumption losses. (ii) A devaluation of tradable fossil energy endowments contributes largely to the mitigation costs of fossil fuel exporters. (iii) In case of reduced availability of low-carbon technologies, the permit market volume and associated monetary redistributions increase. The results suggest that the availability of a broad portfolio of low-carbon technologies could facilitate negotiations on the permit allocation scheme in a global cap-and-trade system.     

The impact of climate change on the electricity market: A review

Climate change will impact electricity markets through both electricity demand and supply. This paper reviews the research on this topic. Whereas there is much that remains unknown or uncertain, research over the last few years has significantly advanced our knowledge. In general, higher temperatures are expected to raise electricity demand for cooling, decrease demand for heating, and to reduce electricity production from thermal power plants. The effect of climate change on the supply of electricity from non-thermal sources shows great geographical variability due to differences in expected changes to temperature and precipitation. Whereas the research frontier has advanced significantly in the last few years, there still remains a significant need for more research in order to better understand the effects of climate change on the electricity market. Four significant gaps in the current research are regional studies of demand side impacts for Africa, Asia, the Caribbean and Latin America, the effects of extreme weather events on electricity generation, transmission and demand, changes to the adoption rate of air conditioning, and finally, our understanding of the sensitivity of thermal power supply to changes in air and water temperatures.