In doing literature research for my thesis I’m currently reading William Nordhaus’ “A Question of Balance – Weighing the Options on Global Warming Policies”. It’s full of interesting numbers and a superb introduction to the issues involved in climate change policies. Here’s a couple of tidbits that you may find interesting:
We have determined that a low-cost and environmentally benign substitute for fossil fuels would be highly beneficial. In other worlds, a low-cost backstop technology would have substantial economic benefits. We estimate that such a low-cost zero-carbon technology would habe a net value of around $17 trillion in the present value because it would allow the globe to avoid most of the damages from climate change. No such technology presently exists, and we can only speculate on it. It might be low-cost solar power, geothermal emergy, some nonintrusive climate engineering or genetically engineered carbon-eating trees. Although none of these options is currently feasible, the net benefits of zero-carbon substitutes are so high as to warrant very intensive research
So, if any of you have a good idea on how to make carbon-eating trees a reality, come talk to me! It seems there is some money to me made (even if we were only able to capture a small share of this total benefit). Should we fail to pull this off, however, my guess is Craig Venter and company are a pretty good bet to develop this sort of stuff, albeit in the form of algae and bacteria rather than the colorful carbon-eating trees.
Next, Nordhaus shares a pretty useful heuristic for judging politicians on the issue of global warming:
Whether someone is serious about tackling the global warming problem can be readily gauged by listening to what he or she says about the carbon price. Suppose you hear a public figure who speaks eloquently of the perils of global warming and proposes that the nation should move urgently to slow climate change. Suppose that person proposes regulating the fuel efficiency of cars, or requiring high-efficiency light bulbs, or subsidizing ethanol, or providing research support for solar power – but nowhere does the proposal raise the price of carbon. You should conclude that the proposal is not really serious and does not recognize the central economic message about how to slow climate change. To a first approximation, raising the price of carbon is a necessary and sufficient step for tackling global warming. The rest is at best rhethoric and may actually be harmful in inducing economic inefficiencies.
How high should that price of carbon be, you may ask? Well, that all depends on how big a threat you think global warming is going to be, how fast you want to reduce global emissions and how many countries will do the reducing. But if we take the recent German proposal at the G8 to reduce global emissions by 50% below 1990 levels by mid-century (a proposal that Nordhaus is quite critial of), then the achievement of this aim requires a price that rises rapidly from a level of $25 per metric ton of carbon right now to $95 in 2015, $265 in 2025, $500 in 2035, $795 in 2045 and a whopping $950 in 2055.
Note that these prices are calculated under the assumption of full participation and optimal policy, i.e. all the countries in the word immediately start imposing these carbon prices and reduce their emissions by always ceasing the most polluting activities before the less poluting ones. You know, rather than betting on ethanol, coming up with wasteful car emission standards and other such relatively inefficient policies. Even in this fairyland scenario, the tax on a liter of gasoline should rise by 1 $cent for every $10 rise in the social cost of carbon, to give you a sense of scale. And if, as seems likely, the Chinese and the Indians are not quite as eager to strangle their burgeoning economies with taxes and regulations in the near future, we’re going to have to pay way more than that. With people all over the world complaining about high gas prices already, color me sceptical that that’s going to happen.