Adair Turner

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The Economics of Climate Change

• Adair Turner

8th May 2007
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Emissions scenario to limit temperature change
Source Stern Review, Part III, Chapter 9
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CO2 emissions per capita
Tonnes of carbon
USA
Western Europe
China
India
1000
2000
3000
Population Million
Source Carbon Trust The Climate Change
Challenge, March 2005
4
Sterns conclusion

• If we dont act, the overall costs and risks of
  climate change will be equivalent to losing at
  least 5 of global GDP each year, now and
  forever. If a wider range of risks and impacts
  is taken into account, the estimate of damage
  could rise to 20 of GDP or more.
• In contrast, the costs of action reducing
  greenhouse gas emissions to avoid the worst
  impacts of climate change can be limited to
  around 1 of GDP each year.

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The impact of climate change
Changes in agricultural yields Costs of sea
defences Losses from extreme weather events
Measurable market impacts
Directly effect GDP
Non-market impacts Direct human
welfare Socially contingent Subjective
Deaths from heatwaves / less deaths from
cold Spread of tropical diseases Flooding of
coastal areas
Expressable as GDP equivalents?

• Political and social disruption
• movement of people

Environmental balance, species, landscape
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Non-linear adverse consequences
Adverse consequences
Temperature Increase
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The impact of discount rates
1000 in 2150 is worth
Assuming 2 per annum growth 1 of GDP today is
worth
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Growth in UK living standards with 60
emissions cut
GDP per capita 2006100
338
0.3 2.0 lower
100
Business as usual
60 emissions cut
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The stabilisation challenge
Source R Socolow, R. Hotinski, J.B. Greenblatt
and S Pacala, Solving the Climate Problem
Technologies Available to Curb CO2 Emissions,
Environment, Volume 46, No.10, December 2004 Gtc
means billion of metric tons of carbon
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Potential Wedges cuts of 1gt of carbon per
year in 2054

• 1. Efficient vehicles
• 2. Reduced use of vehicles
• 5. Gas for coal substitution
• 6. Carbon capture and storage
• 10. Wind power
• 13. Biomass fuel

• Increase fuel economy for 2 billion autos from 30
  to 60 mpg.

. . .
Decrease auto travel for 2 billion 30 mpg autos
from 10000 to 5000 miles per year
. . .

• 1400 G watts of electricity generation switched
  from coal to gas.

. . .
Introduce CCS at 800 G watt coal stations
. . .

• 50 times as much wind power as at present.

. . .

• 100 times the current Brazilian ethanol
  production

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The economic cost of cutting emissions
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Policy instruments

• Price based
• Tax
• Trading
• Regulation based
• Persuasion / social responsibility based

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UK carbon emissions 2002
Total 165 mtc
Source The carbon emissions in all that we
consume, Carbon Trust, 2006
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UK Carbon emissions 2002
Total 165 mtc
Source The Carbon Emissions in all that we
Consume, Carbon Trust, 2006
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UK Carbon emissions 2002
Total 165 mtc
Energy supply industry
Source The Carbon Emissions in all that we
Consume, Carbon Trust, 2006
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Business and public sector emissions(excluding
transport, distribution and supply industries)
Manufacturing (electricity)
Manufacturing (direct)
Source The UK Climate Change Programme Carbon
Trust, 2005
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CO2 emissions per capita
Tonnes of carbon
USA
Western Europe
China
India
1000
2000
3000
Population Million
Source Carbon Trust The Climate Change
Challenge, March 2005
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The market for EU allowances (EUAs) prices and
volumes
Source Stern Review, Chapter 15
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Major policy initiatives

• EU Emissions Trading Scheme
• Tighter 2008 2012 cap
• Tighter still and auctioning beyond 2012?
• EU post-Kyoto policy
• 30 cut by 2020 if all developed countries
• 20 cut if unilateral
• AB 32 the Californian Global Solutions Act
  2006
• 25 cut by 2020
• 80 aspiration by 2050 (Executive Order)
• Leading US Presidential candidates committed to
  cap and trade regimes
• Australian light bulbs regulations
• Etc.