Advancing public and private policymakers’ understanding of the complex interactions between climate change and the economy is critical to taking the most cost-effective action to reduce greenhouse gas emissions. Read More
Last week the British Government published a report on The Future of Food and Farming in which the role of a changing climate is appropriately highlighted as a major impediment to maintaining consistent and predictable food supplies for the world’s growing population. The timing of this report is excellent; food prices have been rising recently (see chart) and have caused significant hardship for some of the most globally vulnerable populations. These vulnerable populations live in some of the most politically unstable regions, and continued food inflation could exacerbate existing social and economic issues with potentially unpredictable consequences.
Unfortunately as the global climate changes and agricultural productivity shifts, these sort of price rises in basic foods are likely to become more commonplace for the economically sensitive populations in these politically unstable regions – like Southeast Asia, Northern Africa, and the Middle East. This is not to imply that recent increases in food prices were caused by climate change; it is not possible to attribute a single event such as this latest spike in food prices to the long-term trends we expect to experience from our changing climate. It is, however, instructive to identify that the sort of impacts that we expect from climate change can have serious social and political implications.
Recent work shows that several of the world's most important crops could be near climactic thresholds that will seriously impair agricultural yields.Several of these crops (like corn, rice, soybeans and wheat - the source of 75% of global calorie consumption) appear to be sensitive to increases in temperature variation, especially to the occurrence of a particularly hot day in the middle of the growing season. Increases in temperature variation and the prevalence of what are historically unusually hot days is exactly what our best models of the future climate predict. Even if global yields are able to remain fairly constant due to human adaptation to the shifting regions of agricultural productivity (e.g., northward from the U.S. Plains to Canada and Siberia), the temporary economic dislocation will certainly be difficult for today's farmers and for the people who are dependent on the food that they produce.
Other research suggests that increasing temperatures could cause major difficulties for farmers in Southeast Asia who produce a large fraction of global rice output, an important staple in the region. This research recognizes that the human body simply cannot perform the hard manual labor (like that needed to tend to rice paddies) at the temperatures climate models predict. By 2050, these temperatures are expected to be commonplace for the region – potentially resulting in a huge loss of agricultural output.
While agricultural contributions to overall GDP in the rich world may seem relatively minor, it is important to remember that GDP is only a measure of economic activity and not a measure of well-being. The well-being that food provides is not necessarily proportionate to its market price. A common example used to illustrate this point is a comparison of the price of diamonds to the price of water. Water is much less expensive but is an absolute necessity. Staple foods are similar. If the price of diamonds increases, people (in aggregate) can choose to purchase less. If the price of water or food increases however, there is little flexibility (elasticity, in economic terms) in terms of how much less people can choose to buy.
If food prices rise in the rich world, consumers will spend more of their income on food and forgo other consumption options. In developing nations this trade-off may not be possible – creating a situation where political unrest could become more likely. According to World Bank data, over 50% of the world’s population lives on less than $2 a day. Obviously for these populations, even small increases in the prices of staples can cause real difficulties since a large fraction of their income is already spent on food. Some of the regions that have the highest concentrations of the global poor are also the regions that tend to be among the most politically volatile. Though it is unlikely that food prices would directly cause conflict or instability in these regions, it is more likely that the stress caused by higher (or more volatile) food prices will worsen existing socio-economic pressures.
The resulting consequences will be difficult to predict; and by their nature will create difficulties in creating an effective adaptive response. Though it will likely never be clear which future conflicts could have been avoided in the absence of climate change, we do know that proactive policy effort taken now can reduce the eventual impact of future food price pressures.
Russell Meyer is the Senior Fellow for Economics and Policy
Economic models are an important tool for evaluating the potential impact of proposed legislation on our economy. C2ES’s economics program has analyzed several commonly used models to determine how they work, what inputs and assumptions influence their results, and what important elements are missing. Differences among economic modeling results are often explained by the way the following factors are represented in each model:
- The economy’s and environment’s assumed baselines (i.e., how the economy will perform in the absence of climate policies);
- The precise climate policies employed (e.g., emissions trading, inclusion of non-CO2 gases, etc.);
- Whether estimates of damage resulting from climate change are included;
- The economy’s flexibility when subject to sudden price shocks or government regulation; and
- How technological change is characterized.
Effectively understanding the potential costs and benefits of mitigating climate change allows policymakers to develop policies that achieve the greatest emissions abatement for the resources expended, secure greater participation and compliance, and maximize the environmental effectiveness of the mitigation effort.
Because climate change is an interdisciplinary issue by its nature, much of the modeling work that is done to analyze the issue incorporates both economics and science. Integrated Assessment Models (IAMs) aim to pull these complex interactions together. An IAM incorporates a model of the global climate system, along with the response of natural systems to increases in greenhouse gas emissions, with a model of economic systems in order to assess the impact that a changing climate will have on the future economy.
To read more about IAMs, click here.
For a review of modeling analyses for a piece of proposed climate legislation, click here.
Climate change is happening and it is caused largely by human activity. Its impacts are beginning to be felt and will worsen in the decades ahead unless we take action. The solution to climate change will involve a broad array of technologies and policies—many tried and true, and many new and innovative.
This overview summarizes the eight-part series Climate Change 101: Understanding and Responding to Global Climate Change.
Science and Impacts discusses the scientific evidence for climate change and explains its causes and current and projected impacts.
Adaptation discusses these impacts in greater depth, explaining how planning can limit (though not eliminate) the damage caused by unavoidable climate change, as well as the long-term costs of responding to climate-related impacts.
As explored in greater depth in Technological Solutions, a number of technological options exist to avert dangerous climatic change by dramatically reducing greenhouse gas emissions both now and into the future.
Business Solutions, International Action, Federal Action, State Action, and Local Action describe how business and government leaders at all levels have recognized both the challenge and the vast opportunity dealing with climate change presents. These leaders are responding with a broad spectrum of innovative solutions. To address the enormous challenge of climate change successfully, new approaches are needed at the federal and international levels, and the United States must stay engaged in the global effort while adopting strong and effective national policies.
For more information, be sure to listen to our Climate Change 101 podcast series
There are a variety of policy tools to reduce the greenhouse gas emissions responsible for climate change. This installment of the Climate Change 101 series explains how a cap-and-trade program sets a clear limit on greenhouse gas emissions and minimizes the costs of achieving this target. By creating a market and a price for emission reductions, cap and trade offers an environmentally effective and economically efficient response to climate change.
With EPA’s recent announcement of timelines for additional regulation of greenhouse gases (utility and refinery sectors) and the arrival in town this week of the new Congress, the shouting about EPA’s regulatory actions has already begun. Many of these claims are clearly political posturing – the facts are that schools, churches, and libraries will NOT be subject to regulations, there will NOT be a moratorium on all new industrial facilities for at least 18 months, and new coal plants will NOT be banned. But it is also true that regulating greenhouse gases (GHGs) has the potential to substantially impact our economy and is critical to reducing the risks and costs associated with climate change. The critical challenge facing EPA is how to properly balance the costs of reducing GHG emissions against the benefits of limiting climate change. How EPA balances these interests demands a serious discussion. In an effort to lower the volume and better inform future discussions about EPA’s use of its regulatory authority, the following are key factors that should be considered.
1. EPA is not overreaching by regulating greenhouse gases (GHGs) under the Clean Air Act but is doing so in direct response to the Supreme Court’s 2007 ruling in Mass. v. EPA.
Some have incorrectly claimed that EPA has overstepped its authority in regulating greenhouse gases and is attempting to regulate GHGs even though Congress failed to pass climate legislation last year. In fact, it is the Supreme Court in 2007 that clarified that EPA had the authority to regulate GHGs under the existing Clean Air Act. EPA had denied a petition by some states and environmental groups calling on it to begin regulating GHGs under the existing Clean Air Act. The Supreme Court rejected EPA’s claim that the Clean Air Act does not apply to GHGs and held that these emissions meet the definition of an “air pollutant” under the Act. The court held that “under the Act’s clear terms, EPA can avoid promulgating regulations only if it determines that greenhouse gases do not contribute to climate change or if it provides some reasonable explanation as to why it cannot or will not exercise its discretion to determine whether they do.” Based on its extensive review of the scientific evidence in its endangerment finding, EPA reached the only conclusion that the evidence supported – that GHG emissions cause or contribute to air pollution, which may reasonably be anticipated to endanger public health or welfare and, therefore, are subject to regulation under the Clean Air Act.
2. EPA’s regulations will not require unproven technologies, impose excessive costs at a time when our economy is hurting, or harm small and previously unregulated sources.
There are legitimate concerns that the Clean Air Act was not developed specifically with GHGs in mind and these emissions are different in fundamental ways from traditional hazardous and criteria pollutants covered by the Act. As a result, EPA has gone to great lengths to “tailor” its regulations -- for example, with respect to new source permitting -- in such a way that only the largest sources of GHGs are covered. This tailoring rule has been challenged in courts (along with all other GHG regulations). If it is overturned, Congressional intervention would likely be necessary. But the Clean Air Act includes many provisions that minimize compliance costs, and many of its fundamental requirements apply equally well to regulating GHGs. For example, the Act requires that technological feasibility and costs be considered in setting emission performance standards and allows for different requirements for new and existing sources. In its guidance to states on what constitutes “best available control technology,” EPA has focused on energy efficiency technologies as a means to achieve both reductions in GHG emissions and cost savings to firms. The agency has also made it clear that the use of coal as a fuel can be continued under its guidelines. While EPA regulations will impose some costs on firms, based on guidance to date, those costs are likely to be modest and will result in far greater benefits than costs to society.
3. Delaying any EPA regulatory actions would be bad for business and bad for the climate.
Delaying regulations by EPA will allow some firms to avoid compliance costs in the near term but will increase overall costs over the longer term. For firms in states already facing GHG requirements (e.g., utilities in 10 northeast and mid-Atlantic states, large emitters in California), any delay in EPA regulations are not likely to alter the requirements they face. For firms in other locations that are planning facilities with long lifetimes, some are likely to install the same technology that would be required by EPA in an effort to avoid more expensive retrofits in the near future. These firms would prefer the certainty of knowing what regulatory requirements they must meet prior to making large capital investments. Finally, delay in reducing GHG emissions will result in greater economic harm throughout our society as families and communities face the costs associated with increases in extreme weather (droughts and floods), impacts from sea level rise, limits on the availability of water resources, and other climate impacts.
4. EPA’s regulatory actions are not a form of backdoor cap and trade or an energy tax.
Congress rejected a comprehensive cap-and-trade approach to regulating GHG in its last session. EPA’s approach does not rely on a cap-and-trade regime and is far from comprehensive. EPA’s regulations focused first on the transportation sector with the issuance of widely supported standards for light-duty vehicles and proposed standards for medium and heavy-duty vehicles. On the stationary source side, EPA first targeted the largest new sources and major modifications of existing sources and recently announced plans to develop new source performance standards for the electric utility and refinery sectors. Such standards are the traditional approach used under the Clean Air Act and are generally implemented through state programs.The regulations are being developed on a timeframe consistent with Clean Air Act requirements covering other pollutants to allow covered sources the flexibility of developing compliance plans that cost-effectively meet a comprehensive set of requirements.
5. EPA is not attempting to meet the same reduction requirements that were rejected by the last Congress.
The House-passed climate change bill called for reductions in GHG emissions of 17 percent of 2005 levels by 2020, increasing to reductions of over 80 percent by 2050. EPA’s use of the Clean Air Act is not likely to produce emission reductions of the magnitude or in the timeframe set forth in the legislation proposed last year.
6. Important questions do need to be addressed in moving forward.
EPA’s initial set of regulations represent an important beginning in addressing the risks associated with climate change but also raise important issues. In moving forward, several questions will need to be addressed:
* How will EPA’s regulation be implemented in a manner consistent with current and future state actions?
* Given market forces driving utilities toward increased use of natural gas, the regulatory uncertainty that currently exists, and the age and fuel mix of the current utility fleet, what is the likely future role of coal in this sector?
* As EPA moves forward in regulating stationary sources through the use of emission performance standards, how might it be able to provide flexibility to regulated sources to achieve cost-effective reductions?
* How might EPA regulatory actions specific to utilities interact with possible Congressional interest in a clean energy standard?
Steve Seidel is Vice President for Policy Analysis
By Eileen Claussen
December 20, 2010
2010 was a year of highs and lows.
On the high side were global temperatures; 2010 will mark the hottest year in recorded history. At the start of the year, there was also the short-lived high of thinking we might be on the precipice of meaningful action in the U.S. Congress to protect the climate. Finally, at year’s end the climate talks in Cancún delivered (surprise!) tangible results in the form of agreement on key elements of a global climate framework.
But alas, the lows won out for most of 2010 as a trumped-up email controversy, continuing economic unease, and growing anti-government sentiment in the United States undermined the effort to forge lasting climate solutions at all levels.
Congress. Until quite recently, the Pew Center and many others were actively supporting cap and trade as the number-one climate policy solution. After the House passed a fairly comprehensive energy and climate bill in June 2009 that had a cap-and-trade system at its core, we actually thought that it might become the law of the land.
Before long, however, it became eminently clear that the Senate would not be able to pass a similar bill. The 2010 U.S. elections, which brought more doubters of climate change into the halls of Congress, only made it clearer that comprehensive climate action is off the table for now.
EPA. With Congress unable to pass comprehensive climate legislation in 2010, attention turned to what EPA might be able to do under existing authorities. And it turns out that EPA can do quite a lot by taking reasonable steps that have garnered critical support from the business and environmental communities. In late October, for example, the agency announced a sensible proposal to reduce greenhouse gas emissions and improve fuel efficiency for medium and heavy-duty vehicles. This was followed by a November announcement that will go a long way to making sure that new industrial facilities use state-of-the-art technologies to boost efficiency and reduce emissions.
Of course, opponents of these and other EPA regulations will surely raise a ruckus, and there will be loud cries in Congress to delay the regulations and even cut funding for the EPA. But the possibility remains that the agency could conceivably begin to chip away at U.S. emissions in the months and years ahead.
State Actions. Looking beyond Washington, state capitals were the focus of creative thinking and leadership on the issue of clean energy in 2010. Massachusetts, for example, set a statewide energy efficiency standard in 2010 supported by $1.6 billion in incentives. Meanwhile, California voters upheld the state’s greenhouse gas reduction law by defeating Proposition 23. This marked the first direct vote on addressing climate change in the United States, and it won in an overwhelming fashion.
But the overall story regarding climate action in the states was more mixed. While several regional climate initiatives continued to push forward, the November elections brought to the nation’s statehouses a group of new leaders who adopted strong stands against climate action in their campaigns. We will stay tuned to see how their campaign rhetoric translates into governing.
International. The agreement reached by international negotiators in Cancún in December closed out 2010 on a positive note. The Cancún Agreements import the essential elements of the 2009 Copenhagen Accord into the U.N. Framework Convention on Climate Change, including a stronger system of support for developing countries and a stronger transparency regime to better assess whether countries are keeping their promises. The Cancún Agreements also mark the first time that all of the world’s major economies have made explicit mitigation pledges under the Convention.
Of course, the ultimate goal of the continuing international talks should be a legally-binding climate treaty, but in Cancún we saw countries agreeing on incremental steps that will deliver stronger action in the near term and lay the foundation for binding commitments down the road.
Looking Ahead. Looking ahead, I believe 2011 holds promise only if those of us who support climate action can learn from what happened in 2010. In recent years, domestic and international efforts largely centered on a “big bang” theory of trying to achieve everything at once. Instead, it’s instructive now to take a cue from Cancún and accept that a step-by-step approach to building support for climate solutions offers our best shot at progress.
Calling on the new Congress to pass cap and trade or similarly comprehensive solutions will be a nonstarter, for example. But there may be an opportunity on Capitol Hill for less sweeping steps to reduce U.S. emissions.
Supporters would do well to spend the next several months laying the groundwork for incremental solutions by strengthening communications with the public. We need to do a better job of helping people understand both the risks and the opportunities presented by climate change. In the same way we buy fire insurance to protect against an event that has a statistically small chance of happening but would result in severe damage, acting now to cut emissions reduces our vulnerability to severe events that are likely to become more common in a warming world. And the success of the “No on Prop 23” campaign in California suggests that there remains a healthy appetite among the general public and in the business community (which provided substantial support for the effort) to back well-framed climate solutions.
After a year of highs and lows, we still must aim high in our efforts to address one of the greatest challenges of our time. But we should also heed the lessons of the past year and work for more modest victories now that can keep us on the path to longer-term solutions.
Advancing public and private policymakers’ understanding of the complex interactions between climate change and the economy is critical to taking the most cost-effective action to reduce greenhouse gas emissions. Read more