or more-generous loss carrybacks that reduce the cost capital for voluntary efforts to reduce greenhouse gas emissions, such as those included in S. 1777, the Climate Change Tax Amendment introduced in the 26th Congress by Senator Larry Craig (R-ID), would be more effective than the "credit for early action" regatory framework proposal or the multi-pollutant pproach proposed by some in Congress. CONCLUSIONS: A PARTNERSHIP BETWEEN TAX POLICY AND TECHNOLOGICAL INNOVATION If, as knowledge of the climate system increases, policy changes to reduce carbon emissions become necessary, these changes should be implemented in a way that minimizes damage to the U.S. economy. Above all, experts agree that voluntary measures clearand cost-effectively reduce the growth in greenhouse gas emissions, as the U.S. Second National Communication to the Framework Convention on Climate Change noted in 1997. A U.S. strategy for reducing CO2 emissions and providing energy security should include: Fix the U.S. Tax Code: Providing expensing (firstyear write-off) or faster depreciation for new investments that reduce CO2 can reduce the cost of capital by 20-30 percent. ■ Expand Nuclear Energy: Nuclear power expansion has a vital role to play in managing CO2 emissions while strengthening U.S. energy security. Expand Bilateral Cooperation With Developing Countries: Promoting the use of existing and emerging technology in developing countries for clean coal, natural gas, and hydro electricity production could substantially slow the growth of global CO2 emissions. Expand Incentives for use of landfill methane and biomass including ethanol from cellulose. The EIA's April 2000 Climate Change Technology Initiative report shows that these programs are the most efficient use of tax incentives to reduce CO2 emissions. Implement Multi-Year Plan for Improvement of Coal Technology: In the short term, focus on new clean coal technology, co-firing with biomass, and coal to gas; in the long term, institute a capture target of 50 percent (converts coal emissions to the equivalent of natural gas). Remove Regulatory Barriers: New Source Review is impeding the retrofitting and expansion of U.S. electricity generating, refining, and manufacturing capacity and making it more difficult to put in place the kinds of changes that would reduce CO2 for each unit produced. Avoid Caps on CO2 Emissions by U.S. industry. Such a policy will have a negative impact on the willingness of industry to invest here in the United States in the new technologies because of the concern that "voluntary" emission cuts will become mandatory. Allowing industry to recover its costs faster will spur the kind of investments that reduce CO, and expand output of energy as well as other products and services. Avoid Setting Targets for Global CO2 Concentrations in the range of 550 ppm in the next 75-100 years. Such targets would require the developed countries' CO2 emissions to fall to zero by about 2050 and would likely severely constrain U.S. economic growth. Models which show that their targets can be achieved at low cost, such as the Second Generation Model used by Jae Edmonds at Battelle Memorial Institute, are seriously flawed. The SGM model assumes costless, instantaneous adjustments in all markets and does not specify how the new technology required to move off carbon-based fuels is to be developed. The consensus of the noted climate policy scholars whose work is discussed in this report is clear. Given the need to maintain strong U.S. economic growth to address such challenges as a growing population, the retirement of the baby boom generation, and a persistent trade deficit, policymakers need to weigh carefully the Kyoto Protocol's negative economic impacts and its failure to engage developing nations in full participation. Adopting a thoughtfully timed climate change policy-based on accurate science, improved climate models, global participation, tax incentives to accelerate investment in energy efficiency and sequestration, and new technology-is essential, both to U.S. and global economic growth and to eventual stabilization of the carbon concentration in the atmosphere, if growing scientific understanding indicates such a policy is needed. SOURCES AND ADDITIONAL READING DATA SOURCES, FIGURES 2 & 4 DOE/EIA: U.S. Department of Energy, Energy Information Administration, Office of Integrated Analysis and Forecasting. 1998 (October). Impacts of the Kyoto Protocol on U.S. Energy Markets and Economic Activity. Washington, D.C. WEFA: Novak, Mary H. 1998. Global Warming: The High Cost of the Kyoto Protocol-National and State impacts. Eddystone. Penn.: WEFA, Inc. ABARE (Australian Bureau of Agricultural and Resource Economics): Tulpulé, Vivek, Stephen Brown. Jaekyu Lim, Cain Polidano, Hom Pant, and Brian S. Fisher. 1999. The Kyoto Protocol: An Economic Analysis Using GTEM. The Energy Journal (Special Issue: The Costs of the Kyoto Protocol) 257-286. DRI (Standard & Poor's DRI): Brinner, Joyce Y. 1999. Commentary: The Impact of Meeting the Kyoto Protocol on Energy Markets and the Economy. In Climate Change Policy: Practical Strategies to Promo Economic Growth and Environmental Quality, 63-72. Washington, DC: American Council for Capital Formation Center for Policy Research. CRA (Charles River Associates): Bernstein, Paul M., W. David Montgomery, Thomas F. Rutherford, and Gui-Fang Yang. 1999. Effects of Restrictions on International Permit Trading: The MS-MRT Model. The Energy Journal (Special Issue: The Costs of the Kyoto Protocol) 221-256. Manne/Richels: Manne, Alan S. and Richard G. Richels. 1999. The Kyoto Protocol: A Cost-Effective Strategy for Meeting Environmental Objectives? In Climate Change Policy: Practical Strategies to Promote Economic Growth and Environmental Quality, 3-23. Washington, D.C.: American Council for Capital Formation Center for Policy Research. Admin/CEA: Council of Economic Advisers. 1998 (July). The Kyoto Protocol and the President's Policies to Address Climate Change: Administration Economic Analysis. REPORT SOURCES ACCF Center for Policy Research. 2000. The Kyoto Commitments: Can Nations Meet Them With the Help of Technology? Washington, DC: American Council for Capital Formation Center for Policy Research. Australian Bureau of Agricultural and Resource Economics. 2000 (September). Climate Change Policy and the European Union. www.abareconomics.com Bemstein, Paul M., and W. David Montgomery. 1998. How Much Could Kyoto Really Cost? A Reconstruction and Reconciliation of Administration Estimates. Washington, D.C.: Charles River Associates. Semstein, Paul M., W. David Montgomery, Gui-Fang Yang, Thomas F. Rutherford, and James L. Sweeney. 1998. Trade and industry Impacts of the Kyoto Protocol. Washington, D.C.: The Business Roundtable. Bernstein, Paul M., W. David Montgomery, Thomas F. Rutherford, and Gui-Fang Yang. 1999. Effects of Restrictions on international Permit Trading: The MS-MRT Model. The Energy Journal (Special Issue: The Costs of the Kyoto Protocol) 221-256. Brinner, Joyce Y. 1999. Commentary: The Impact of Meeting the Kyoto Protocol on Energy Markets and the Economy. In Climate Change Policy: Practical Strategies to Promote Economic Growth and Environmental Quality, 63–72. Washington, D.C.: American Council for Capital Formation Center for Policy Research. Business Roundtable. 2001 (April). Unleashing Innovation: The Right Approach to Global Climate Change. White Paper. Washington, D.C. Climate Action Report. 1997. Second national communication submitted to the Framework Convention on Climate Change by the United States. Washington, D.C.: U.S. Department of State. Council of Economic Advisers. 1998 (July). The Kyoto Protocol and the President's Policies to Address Climate Change: Administration Economic Analysis. Crandall, Robert. 1997. Economists and the Global Warming Debate. In Jonathan Adler, ed., The Costs of Kyoto. Washington, DC.: Competitive Enterprise Institute. Ellerman, A. Denny. 1999. Obstacles to Global CO2 Trading: A Familiar Problem. In Climate Change Policy: Practical Strategies to Promote Economic Growth and Environmental Quality. Washington, DC: American Council for Capital Formation Center for Policy Research. European Climate Change Programme. 2001 (June). Report. http://europa.eu.int/comm/environment/climat/eccp.htm. European Commission. 2000 (November). Towards a European Strategy for the Security of Energy Supply. Francl, Terry, Richard Nadler, and Joseph Bast. 1999. The Kyoto Protocol and U.S. Agriculture. Heartland Policy Study No. 87. Chicago: The Heartland Institute. Gummer, John, and Robert Moreland. 2000 (June). The European Union and Global Climate Change: A Review of Five National Programmes. Arlington, Virginia: Pew Center on Global Climate Change. Jacoby, Henry D. 1999. The Uses and Misuses of Technology Development as a Component of Climate Policy. In Climate Change Policy: Practical Strategies to Promote Economic Growth and Environmental Quality, 151-169. Washington, D.C.: American Council for Capital Formation Center for Policy Research. Jozzo, Frank, Edwina Heyhoe, Kate Woffenden, Stephen Brown, and Brian S. Fisher. 2000. Commentary: The Kyoto ProtocolImpact on Developing Countries and Some Implications for the Design of the Kyoto Mechanisms. In The Kyoto Commitments: Can Nations Meet Them With the Help of Technology?, 75-107. Washington, DC.: American Council for Capital Formation Center for Policy Research. Manne, Alan S. and Richard G. Richels. 1999. The Kyoto Protocol: A Cost-Effective Strategy for Meeting Environmental Objectives? In Climate Change Policy: Practical Strategies to Promote Economic Growth and Environmental Quality, 3-23. Washington, DC: American Council for Capital Formation Center for Policy Research. McKibben, Warwick J., and Peter J. Wilcoxen. 1997. A Better Way to Slow Global Climate Change. Brookings Policy Brief No. 17. Washington, D.C.: Brookings Institution. Montgomery. W. David. 1996. Developing a Framework for Shortand Long-Run Decisions on Climate Change Policies. In An Economic Perspective on Climate Change Policies, 15-43. Washington, D.C.: American Council for Capital Formation Center for Policy Research. Moroney, John R. 1999. Energy. Carbon Dioxide Emissions, and Economic Growth. In Climate Change Policy: Practical Strategies to Promote Economic Growth and Environmental Quality, 41–62. Washington, DC: American Council for Capital Formation Center for Policy Research. National Academy of Sciences, Committee on the Science of Climate Change, National Research Council. 2001. Climate Change Science: An Analysis of Some Key Questions. Washington, D.C.: National Academy Press. Nordhaus, William and Joseph Boyer. 1999. Requiem for Kyoto: An Economic Analysis. In The Costs of the Kyoto Protocol: A Mula-Model Evaluation, ed. John P. Weyant. The Energy Journal, Special Issue. Novak, Mary H. 1998. Olobal Climate Change, Environmental Quality, and U.S. Living Standards: The Impact on Consumers In The Impact of Climate Change Policy on Consumers: Can Tradable Permits Reduce the Cost?, 3-18. Washington, DC: American Council for Capital Formation Center for Policy Research. Novak, Mary H. 2000. The Kyoto Protocol: Can Annex B Countries Meet Their Commitment? In The Kyoto Commitments: Can Nations Meet Them With the Help of Technology?, 13-66. Washington, DC: American Council for Capital Formation Center for Policy Research. Novak, Mary H. 1998. Global Warming: The High Cost of the Kyoto Protocol-National and State Impacts. Eddystone, Penn: WEFA, Inc. Rutherford, Thomas. 1996. Carbon Dioxide Emission Restrictions U.S. Department of Agriculture. 1999 (May). Economic Analysis U.S. Department of Energy. Energy Information Administration, Office of Integrated Aysis and Forecasting. 1999 (July). Analysis of the Impacts or an Early Start for Compliance with the Kyoto Protocol. Washington, DC. U.S. Department of Energy Energy Information Administration, Office of Integrated Arsis and Forecasting. 1998 (October). Impacts of the Kyoto Protacol on U.S. Energy Markets and Economic Activity Washington, DC. Viguier, Laurent L., Mustafa H. Babiker, and John M. Reilly 2001 (February). Carbon Emissions and the Kyoto Commitment in the European Union. Report No. 70. Cambridge, Mass.: MIT Joint Program on the Science and Policy of Global Change. Yohe. Gary W. 1997. Clima: Change Policies, the Distribution of Income, and U.S. Living Standards. In Climate Change Policy, Risk Prioritization, ari U.S. Economic Growth, 13-54. Washington, DC: American Council for Capital Formation Center for Policy Research APPENDIX: KEY GAPS IN THE SCIENCE OF CLIMATE CHANGE Despite the United States' intensive investment in climate change science over the past decade, numerous gaps remain in our understanding of climate change. The National Academy of Sciences' National Research Council identified in its June 2001 white paper, Climate Change Science: An Analysis of Some Key, critical uncertainties about the science of climate change. The National Research Council paper goes on to identify a range of specific areas of scientific uncertainty that require additional study and research. These gaps include (page references are from the source document): Conflict exists between global atmospheric and "surface" temperature measurements: "Although warming at the Earth's surface has been quite pronounced during the past few decades, satellite measurements beginning in 1979 indicate relatively little warming of air temperature in the troposphere (see Figure 6 in this testimony]. ... The finding that surface and troposphere temperature trends have been as different as observed over intervals as long as a decade or two is difficult to reconcile with our current understanding of the processes that control the vertical distribution of temperature in the atmosphere.” (p. 17) How much carbon is sequestered by oceans and terrestrial sinks and how much remains in the atmosphere are uncertain: "How land contributes, by location and processes, to exchanges of carbon with the atmosphere is still highly uncertain..." (p. 11) "These estimates (of future carbon dioxide climate forcings] are only approximate because of uncertainty about how efficiently the ocean and terrestrial biosphere will sequester atmospheric CO2.” (p. 13) "How much of the carbon from future use of fossil fuels will be seen as increases in carbon dioxide in the atmosphere will depend on what fractions are taken up by land and by the oceans. The exchanges with land occur on various time scales, out to centuries for soil decomposition in high latitudes, and they are sensitive to climate change. Their projection into the future is highly problematic." (p. 18) The feedbacks in the climate system that determine the magnitude and rate of temperature increases are uncertain: "Because there is considerable uncertainty in current understanding or how the climate system varies naturally and reacts to emissions of greenhouse gases and aerosols, current estimates of the magnitude of future warming should be regarded as tentative and subject to future adjustments (either upward or downward)." (p. 1) "Much of the difference in predictions of global warming by various climate models is attributable to the fact that each model represents these [feedback] processes in its own particular way. These uncertainties will remain until a more fundamental understanding of the processes that control atmospheric relative humidity and clouds is achieved." (p. 4) "The warming that has been estimated to have occurred in response to the buildup of greenhouse gases in the atmosphere is somewhat greater than the observed warming." (p. 17) The direct and indirect effects of aerosols are uncertain: "The greatest uncertainty about the aerosol climate forcing indeed, the largest of all the uncertainties about global climate forcings-is probably the indirect effect of aerosols on clouds." (p. 14) "The great uncertainty about this indirect aerosol climate forcing presents a severe handicap both for the interpretation of past climate change and for future assessments of climate changes." (p. 14) "Climate forcing by anthropogenic aerosols is a large source of uncertainty about future climate change." (p. 13) "Because of the scientific uncertainties associated with the sources and composition of carbonaceous aerosols, projections of future impacts on climate are difficult." (p. 12) "The conclusion is that the black carbon aerosol forcing is uncertain but may be substantial. Thus there is the possibility that decreasing black carbon emissions in the future could have a cooling effect that would at least partially compensate for the warming that might be caused by a decrease in sulfates." (p. 13) ■The details and impacts of regional climate change resulting from global climate change are uncertain: "On the regional scale and in the longer term, there is much more uncertainty" with respect to effects on agriculture and forestry. (p. 19) "The Northern Hemisphere as a whole experienced a slight cooling from 1946-75, and the cooling during that period was quite marked over the eastern United States. The cause of this hiatus in the warming is still under debate." (p. 16) "Health outcomes in response to climate change are the subject of intense debate. ... The understanding of the relationships between weather/climate and human health is in its infancy and therefore the health consequences of climate change are poorly understood. The costs, benefits, and availability of resources for adaptation are also uncertain." (p. 20) "Changes in storm frequency and intensity are one of the more uncertain elements of future climate change prediction." (p. 20) The nature and causes of the natural variability of climate, including the sun, and its interactions with forced changes are uncertain: "Because of the large and still uncertain level of natural variability inherent in the climate record and the uncertainties in the time histories of the various forcing agents (and particularly aerosols), a causal linkage between the buildup of greenhouse gases in the atmosphere and the observed climate changes during the 20th century cannot be unequivocally established." (p. 17) The value of indirect effect of ozone changes induced by solar ultraviolet irradiance variations "remains highly uncertain." (p. 14) The emissions and usage of fossil fuels and the future emissions of methane are uncertain: "The increase of global fossil fuel CO2 emissions in the past decade, averaging 0.6 percent per year, has fallen below the IPCC scenarios. The growth of atmospheric CH4 has fallen well below the IPCC scenarios." (p. 19) "With a better understanding of the sources and sinks of methane, it may be possible to encourage practices... that lead to a decrease in atmospheric methane and significantly reduce future climate change." (p. 13) "There is no definitive scientific basis for choosing among several possible explanations for these variations in the rates of change of global methane contributions, making it very difficult to predict its future atmospheric concentrations." (p. 11) In response to these gaps in our knowledge, the NRC paper also recommends "research that couples physical, chemical biological and human systems, an improved capability of integrating scientific knowledge, including its uncertainty, into effective decision support systems, and an ability to conduct research at the regional or sectoral level that promotes analysis of the response of human and natural systems to multiple stresses." The NRC study also indicates that to advance the understanding of climate change, it will be necessary to have "a global observing system in support of long term climate monitoring and prediction [and] concentration on large-scale modeling through increased, dedicated supercomputing and human resources." In addition to the recent NRC paper, the U.S. Global Change Research Program has updated its 10-year plan and submitted it to the National Research Council (NRC) for review. High priority areas for further research are identified in numerous recent reports and documents, such as: "Global Environmental Change: Research Pathways for the Next Decade" (NRC, 1998); "Capacity of U.S. Climate Modeling to Support Climate Change Assessment Activities" (NRC, 1998); and "Adequacy of Climate Observing Systems" (NRC, 1999). |