Friday, September 19, 2014

Words on Stern 2.0; impacts of carbon pricing

"...if the modeling exercises that Krugman touts are correct, and countries pursue policies based on a belief in wind and solar, the actual costs of cutting emissions will be far higher than what Krugman claims."  - Michael A Levi

Let's start in 2010, on page 1 of 10 from Paul Krugman's Building a Green Economy:
The casual reader might have the impression that there are real doubts about whether emissions can be reduced without inflicting severe damage on the economy. In fact, once you filter out the noise generated by special-interest groups, you discover that there is widespread agreement among environmental economists that a market-based program to deal with the threat of climate change — one that limits carbon emissions by putting a price on them — can achieve large results at modest, though not trivial, cost.
Krugman today, in Could Fighting Global Warming Be Cheap and Free:
I’ve just been reading two new reports on the economics of fighting climate change: a big study by a blue-ribbon international group, the New Climate Economy Project, and a working paper from the International Monetary Fund. Both claim that strong measures to limit carbon emissions would have hardly any negative effect on economic growth, and might actually lead to faster growth. This may sound too good to be true, but it isn’t.
The IMF has a working paper out prior to a big meeting.
The two things climate meetings produce is more papers and more climate meetings.

The "big study" is the topic of Richard Tol's Stern2.0 takes climate policy analysis to a new level of exaggeration:
The original Stern Review argued that it would cost about one percent of Gross Domestic Product to stabilise the atmospheric concentrations of greenhouse gases around 525 ppm CO2e. The Intergovernmental Panel on Climate Change puts the costs twice as high. Stern2.0 advocates a more stringent target, 450 ppm, and finds that this would accelerate economic growth.
It is nice to see the current well-financed documents coming out prior to the United Nations Climate Summit dropping the "this is going to hurt" messaging that hasn't worked for the past two decades. It would be nicer if energy density and portability were recognized as the reasons for fossil fuel use (not right wing climate denialism and/or capitalism and/or evil and/or ...). Perhaps in the reports they are.

Michael Levi has written a column inspired be Krugman's effort, Is Solar Power Making Climate Policy Cheap?
For the second time this year, Paul Krugman has written a column explaining that serious studies consistently conclude that slashing global carbon dioxide emissions doesn’t need to be expensive. Also for the second time, he gives much of the credit to falling costs for renewable energy, particularly solar power. He’s absolutely correct on the broader point – but dead wrong in explaining why the studies come to that conclusion.
Levi nicely explains how Krugman can be wrong, but pricing carbon to slash emissions could be relatively harmless to economies:
Take a look first at the IPCC report. The 0.06 percentage point figure is for a set of “default technology assumptions” that include availability of nuclear power, carbon capture and sequestration (CCS), and other tools. The plot below (from the IPCC report) shows what happens to the model projections when you rule out CCS and still try to hit an ambitious two-degree temperature goal: the median model that doesn’t crash projects that costs rise by about 140 percent. (Most of the models the IPCC uses can’t even find a pathway – at any cost – that hits the temperature goal once you rule out CCS.) Something similar happens when you rule out abundant bioenergy. In contrast, if you rule out abundant wind and solar, the median model shows increased costs of only a few percent, and the most pessimistic one projects only a 25 percent cost rise. The take-away is that the low cost projections are being driven far more by abundant CCS and bioenergy than by cheap wind or solar.
...How about the NCE study? The plot below is the critical one from that report. Only 30 percent of the opportunities identified come from energy shifts of any sort at all. (Opportunities in land use in particular are claimed to be much larger.) Out of that slice, less than half comes from renewable power, dominated by wind rather than solar. (Exact numbers will need to wait until NCE publishes its appendices.) Nuclear and CCS play a substantial role; energy efficiency plays a massive one as well.
Even here, assumptions exist about future innovations and the ability to implement more efficient tax policies.

That's all from today's articles, but I'll end with a reminder of one of my favourite papers, Lion Hirth's The Market Value of Variable Renewables. Section 5.2, "The effect of CO2 pricing", indicate Hirth's modeling shows a higher carbon price would not be beneficial for wind generators, specifically because it would spur investment in CCS and nuclear. What Krugman's favourite technologies require to be profitable in many places is both a high carbon price and a banning of CCS and nuclear. There's no indication that would be painless economically.

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