Carbon Abatement Costs and Climate Change Finance (Policy Analyses in International Economics)

The views expressed in this publication are those of the author. This publication is part of the overall program of the Institute, as endorsed by its Board of Directors, but does not necessarily reflect the views of individual members of the Board or the Advisory Committee. v Contents Preface ix ix Preface In this study, William Cline continues his work on climate change that began with his path-breaking 1992 book, The Economics of Global Warming, and includes his most recent book Global Warming and Agriculture: Impact Estimates by Country (2007). This new analysis focuses on the abatement costs likely to be required to keep global warming within the internationally endorsed ceiling of 2°C warming above preindustrial temperatures. Cline employs three leading abatement cost models to examine a "Copenhagen Convergence" policy scenario in which the major nations achieve their 2020 emissions curbs pledged at Copenhagen in December 2009 and thereafter converge to uniform low per capita emissions by 2050. The momentum for action on greenhouse gas abatement has faltered recently, at least in the United States with the failure of Senate action on legislation on emissions restraint after the Waxman-Markey bill passed the House of Representatives in 2009. The estimates in this study should provide some reassurance that forceful action is possible without imposing prohibitive economic costs. The central model estimates indicate that abatement costs would amount to about one-third to two-thirds of one percent of GDP for industrial countries by 2030 and moderately less for developing countries. But participation of the major emerging-market economies will be necessary for success and by 2050 the cutbacks from the business-as-usual baseline for China and some others among them are surprisingly close to the deep cuts in industrial countries-because of the rapid rise of emissions otherwise associated with rapid growth. The Institute has sought to contribute to the debate on the new international economic architecture needed to curb global warming. In 2008, the Institute published Leveling the Carbon Playing Field by Visiting Fellow Trevor x Houser and coauthors from the World Resources Institute. Senior Fellows Gary Hufbauer and Jeffrey Schott have written working papers on World Trade Organization (WTO) rules relating to climate change and the prospects for US-NAFTA cooperation on abatement, and Hufbauer, Steve Charnovitz, and Jisun Kim published a major book in 2009 entitled Global Warming and the World Trading System. The Peter G. Peterson Institute for International Economics is a private, nonprofit institution for the study and discussion of international economic policy. Its purpose is to analyze important issues in that area and to develop and communicate practical new approaches for dealing with them. The Institute is completely nonpartisan. The Institute is funded by a highly diversified group of philanthropic foundations, private corporations, and interested individuals. About 35 percent of the Institute's resources in our latest fiscal year was provided by contributors outside the United States. The Doris Duke Charitable Foundation has provided generous support for much of the Institute's recent work on climate change, including the present study. In 2009-10 the Foundation provided support to focus on developing countries' financing needs for climate action. The present study translates the abatement cost estimates into prospective financing needs (chapter 7), including for adaptation. It turns out that the benchmark Copenhagen Accord figure of $100 billion annually by 2020 is broadly supported by the calculations developed here. The Institute's Board of Directors bears overall responsibilities for the Institute and gives general guidance and approval to its research program, including the identification of topics that are likely to become important over the medium run (one to three years) and that should be addressed by the Institute. The director, working closely with the staff and outside Advisory Committee, is responsible for the development of particular projects and makes the final decision to publish an individual study. The Institute hopes that its studies and other activities will contribute to building a stronger foundation for international economic policy around the world. We invite readers of these publications to let us know how they think we can best accomplish this objective.

This study provides alternative estimates of the costs of greenhouse gas abatement through 2050 that would be necessary to limit CO2 atmospheric concentrations to approximately 450 parts per million and limiting warming to 2°C. Specific estimates are provided for 25 major economies (with the European Union as a single economy). Business as usual baselines are first developed, based on US Department of Energy projections through 2030 and on maintenance of country-specific trends in GDP growth, energy efficiency growth, and carbon-efficiency of energy growth thereafter. The central policy simulation then involves a "Copenhagen Convergence" path, in which major economies meet their Copenhagen (December 2009) pledges for 2020, and thereafter emissions per capita decline along a path that by 2050 results in equal per capita emissions in all countries.

Three abatement cost functions are used for calculating the resulting abatement costs: a model based on McKinsey & Co. estimates for 2030; the Nordhaus RICE model cost functions; and a set of summary cost regressions calculated from the Stanford Energy Modeling Forum (EMF-22) survey of abatement models. It is found that abatement costs should be moderate, reaching about one-fourth to two-thirds of one percent of GDP by 2030 and 1 to 2 percent of GDP by 2050. Costs can be reduced by international trading, but by less than generally perceived. A more ambitious early start on abatement than pledged at Copenhagen could reduce full-period costs. The study calculates corresponding magnitudes of investment for abatement as well as adaptation costs for developing countries, and identifies a benchmark of about $80 billion annually (excluding China) by 2020, lending support to the $100 billion target pledged for industrial country financial support by that year.

This study provides alternative estimates of the costs of greenhouse gas abatement through 2050 that would be necessary to limit CO2 atmospheric concentrations to approximately 450 parts per million and limiting warming to 2°C. Specific estimates are provided for 25 major economies (with the European Union as a single economy). Business as usual baselines are first developed, based on US Department of Energy projections through 2030 and on maintenance of country-specific trends in GDP growth, energy efficiency growth, and carbon-efficiency of energy growth thereafter. The central policy simulation then involves a "Copenhagen Convergence" path, in which major economies meet their Copenhagen (December 2009) pledges for 2020, and thereafter emissions per capita decline along a path that by 2050 results in equal per capita emissions in all countries. Three abatement cost functions are used for calculating the resulting abatement costs: a model based on McKinsey & Co. estimates for 2030; the Nordhaus RICE model cost functions; and a set of summary cost regressions calculated from the Stanford Energy Modeling Forum (EMF-22) survey of abatement models. It is found that abatement costs should be moderate, reaching about one-fourth to two-thirds of one percent of GDP by 2030 and 1 to 2 percent of GDP by 2050. Costs can be reduced by international trading, but by less than generally perceived. A more ambitious early start on abatement than pledged at Copenhagen could reduce full-period costs. The study calculates corresponding magnitudes of investment for abatement as well as adaptation costs for developing countries, and identifies a benchmark of about $80 billion annually (excluding China) by 2020, lending support to the $100 billion target pledged for industrial country financial support by that year. Overview -- Baseline Emissions Under Business As Usual -- Abatement Initiatives In The Copenhagen Accord And Cancun Agreements -- Abatement Cost Functions -- Abatement Costs Through 2050 -- Trade And Timing -- Estimating Investment Requirements And Adaptation Costs -- Synthesis. William R. Cline. Includes Bibliographical References And Index. Examines the likely abatement costs associated with keeping global warming within the 2 degree Celsius above preindustrial temperature ceiling and discusses what would need to be invested annually up until the year 2020 to maintain the goal