Fourth Annual Conference on Global Economic Analysis

Policy Panel I: Climate Change Policy

Larry WilliamsEPRI

Some Research Issues

June 27, 2001

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Overview

• The easy stuff– Climate science– Policy proposals– Basic observations

• Open questions– Two studies underway through EMF-Stanford – International policy process in flux– Opportunity to rethink the issue– Introduce imperfections of real world– Uncertainty analysis

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Climate science

• The issue is real—won’t be going away• First signs of human-caused climate change have likely

occurred• Further change appears inevitable• Time scale is very long term

– Not the next election cycle!• Less certain about…

– Where (regions of globe)– When (rate of change)– How much (magnitude)

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• Ultimate goal is the stabilization of greenhouse gas concentrations in the atmosphere

• Initially called upon Annex I countries to take lead and aim to return emissions to 1990 levels by 2000

• Calls for periodic reviews

UN Framework Conventionon Climate Change

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Basic Observations

• The Framework Convention deals with concentrations and NOT emissions

• Timing matters—a gradual energy transition will be cheaper than an abrupt transition

• Stabilization requires participation by the big emitters– Net emissions need to go to ZERO eventually

• Solution requires a portfolio of actions– No single magic solution

• Problem is real and will NOT go away on it’s own

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Policy Directions…?

• Kyoto Protocol as written (US inside)• KyotoEU + Japan + Russia (US outside)• Renew Negotiations

– Revisit Kyoto ?– Revisit Rio ?

• Individual Nations take actions– Bilateral agreements– Permit trading slowly takes hold– Eventual convergence– Europe as laboratory experiment for GHG control

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Failure to agree at COP6 opens upresearch possibilities…

• Most recent climate policy research organized relative to the Kyoto Protocol

• Now is a good time to take broader focus– Rethink global problems related to

• Development, air and water pollution (and water scarcity) AND

• Climate jointly• Stay tuned—new policies will be surfacing

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Research possibilities…

• “International Trade Dimensions of Climate Policy Analysis”– EMF18 (Stanford University) study underway to

examine leakage effects and spill-over effects• “Technology Strategies for Greenhouse Gas Mitigation”

– EMF19 (Stanford University) study examines• Alternative sets of technology assumptions and

ways to represent technological progress• Strong impact on cost estimates

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Research possibilities…

• Real policy implementations unlikely to be optimal– How much more costly will non-optimal be?

• Various forms of command and control• Sector specific caps• Upstream vs. downstream• Various domestic burden sharing schemes

– How will lack of harmony between domestic and international policies affect the costs?

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Research possibilities…

• More work on uncertainty analysis is needed– What are key uncertainties influencing future

emissions• Examine climate issue as risk management

– Climate surprises– Action vs. inaction– Sequential policy proposals– Prudent risk management strategy