Figure 7: Comparison of Economic Impact Studies at Springfield Workshop Impacts of Stabilization of Carbon Emissions in 2010 in EPA, ELA, and EPRI Studies The CHAIRMAN. Thank you very much, Dr. Montgomery. STATEMENT OF DR. JOHN P. WEYANT, PROFESSOR OF ENGI- Dr. WEYANT. Thank you, Mr. Chairman, Senator Johnston. Good morning, or should I say good afternoon. My name is John Weyant, and in addition to my academic position I have also been the director of Stanford's energy modeling forum since 1985. It is an honor and a privilege to be appearing before this committee today, and I very much appreciate this opportunity to report on some recent research on the cost of limiting carbon dioxide emissions that you may find of interest in your deliberations about climate change policy. During the past 2 years, I have been chairing a study by Stanford University's Energy Modeling Forum on integrated assessment of climate change. One of the most significant elements of the study has been the work of a study group that have been examining the cost of emission reductions proposals for the post 2000 time frame. An initial report from that subgroup has been submitted with my testimony. In the next few minutes, I will attempt to summarize the major findings of that exercise. While calling for new commitments on the part of developed countries to limit emissions, the Berlin Mandate does not specify what that commitment should be. Rather, it seeks further analysis and assessment to guide and inform the decision making process. The Energy Modeling Forum subgroup addressed the key issue in the analysis and assessment phase-the design of cost-effective mitigation strategies. The Framework Convention on Climate Change states that policies and measures to deal with climate change should be cost-effective so as to ensure global benefits at the lowest possible cost. Adopting least-cost mitigation strategies will free up valuable resources for further addressing the climate issue and for meeting other societal needs. In our study we explore the ways of promoting this objective. In particular, we focused on the importance of providing flexibility both in the location and timing of emission reductions. Let me stress at the outset that the question we addressed is the question of how best to reduce emissions. This is a very different question from the question of how much to reduce emissions. To address the latter requires a careful balancing of the cost of climate change management proposals with what those proposals might buy in terms of reducing the undesirable consequences of global climate change. The insights from our analysis can perhaps best be communicated by way of an example. Among the scenarios we examined was one that was similar in spirit to a proposal put forward by the Alliance of Small Island States, also known as AOSIS, and this *The report can be found in the appendix. 37-471 0 - 97 - 4 proposal is explicitly included for consideration within the Berlin Mandate. In this scenario, we assume the OECD countries agree to reduce emissions by 20 percent below 1990 levels by the year 2010, and to hold them at that level thereafter. We first calculated the cost on the assumption that the OECD countries would be required to act independently to meet the proposed targets and timetables. That is, they would be unable to take advantage of low cost emission reduction opportunities that may exist in other parts of the world. Rather than rely on a single model, the analysis was based on independent runs of four widely used energy economy models. The models were developed by researchers at MIT, Stanford, Pacific Northwest National Laboratory, and the Electric Power Research Institute. The results from the four models are summarized in figure 1, which is attached to my testimony. Costs are added from today through the year 2050, and discounted to 1990 at 5 percent per year. Because the models differ in terms of key inputs-for example, population, per capita productivity trends, fossil fuel resource base, et cetera, they differ in the cost projections. Nevertheless, they suggest that the cost of adopting an AOSIS-like proposal would be substantial, perhaps $2 trillion to 8 trillion to the OECD. Not surprisingly, OECD countries would be the hardest hit, but the analysis also shows that non-OECD countries would likely incur costs as well, even though the reductions were confined to the OECD. This is because an economic slowdown in the OECD would affect the full range of developing country exports and hence their economic growth. We then examined ways that we might achieve the same amount of emission reductions but at lower cost. In particular, we looked at the benefits of providing what we refer to as where and when flexibility. In the case of "where flexibility," emissions were reduced by a specified amount, but the reductions may be made where it is cheapest to do so regardless of their geographic location. For example, if emissions can be cost-effectively reduced through energy efficiency programs in developing countries, then these are included in the portfolio of emission-reduction measures. In other words, the focus is on identifying the least cost global solution for meeting each year's emissions targets. In the case of "when flexibility," we look at the benefits of providing flexibility on the timing of emissions reductions. Climate change and its associated impacts are directly related around the sphere of concentrations of carbon dioxide, not to year-by-year emissions. With regard to atmospheric carbon dioxide concentrations, the issue is not so much one of year-by-year emissions, but one of cumulative emissions. Because of the long lifetime of carbon dioxide in the atmosphere, carbon dioxide concentrations are determined by the total amount of carbon dioxide released over an extended period. Accordingly, we looked at a case where a limit was placed on cumulative emissions between now and the year 2050. This means that a country participating in the agreement could release more in the early years if it was willing and able to emit less later on. Flexibility in timing has several distinct advantages. The problem with tight, near-term targets is that they require premature retirement of energy-producing and energy-using capital stock, for example, powerplants, houses, and automobiles. As a result, they are likely to be particularly costly. One advantage of the when flexibility is that it provides more time for an economical turnover of the existing capital stock. A second advantage is that it would provide more time to develop low cost alternatives to carbon intensive fuel. There has been substantial progress in lowering the cost of carbon-free substitutes— for example, solar biomass and energy-efficiency measures-in the past. With a sustained commitment to R&D, there should be further cost reductions in the coming decades. It would make sense to rely more heavily on fossil fuels in the early years when the marginal cost of emissions abatement are highest. With cheaper alternatives in the future, there will be less need for reliance on carbon-intensive fuels. Figure 2 summarizes the results of the analysis. The figure is based on the average of model results. The left-most bar shows the case where OECD countries have no flexibility as to where and when the emissions reductions must be made. This is by far the most expensive case. Allowing emissions to be reduced where it is cheapest to do so-the middle bar-cuts cost by nearly 70 percent. The most efficient strategy is one that provides for flexibility both in the location and the timing. Note that when we add when flexibility to where flexibility, costs are halved again, reducing total cost by up to 85 percent. Figure 3 provides an alternative way to present our results. It shows OECD GDP losses over time averaged across the four models. In the absence of where and when flexibility, GDP losses grow to 2.4 percent over the next quarter century-roughly $400 billion in today's economy-to the OECD as a whole. The analysis suggests that the annual losses can be cut substantially through international cooperation and flexible timing. It is important to note that whereas the three cases differ markedly in terms of mitigation cost, they are likely to remain quite similar in terms of environmental impact. The reason is that they lead to identical atmospheric concentrations of carbon dioxide in the year 2050 and the concentration paths lie very close together prior to 2050. As a result, the differential impacts on the climate system are likely to be quite small. In summary, the analysis suggests that mitigation costs can be substantially reduced by providing for both flexibility in the location and timing of emission reductions. With the first emission reductions are made where it is cheapest to do so. With the second, they take place when it is cheapest to do so. There are formidable obstacles to both strategies, but the potential benefits are huge. Indeed, our calculations suggest a potential savings to the international community may well be on the order of trillions of dollars in unnecessary mitigation costs. Thank you very much. [The charts referred to by Dr. Weyant follow:] |