Tuesday, November 20, 2007

Don’t believe those who say carbon diet will cost nothing

From the EU Energy Policy blog:

In a recent interview, the ever optimist Mr. Clinton who can now say what he pleases, declared, “There is way more economic opportunity than cost here (in reducing GHG emissions), and I think unless we take the lead in the US, we’ll never get the Indians and the Chinese to do it.” I agree with the latter but believes that the former may be too good to be true.

Fixing mankind’s addiction to fossil fuels and the accompanying carbon is likely to cost – not an intolerable amount, but it won’t be negligible either. Economists are just beginning to count the costs and most agree that the picture won’t be as rosy as Mr. Clinton would want us to believe – but it won’t ruin our economies as some are predicting. Rough estimates of the potential costs range in the 1-3% of global GDP, depending on the assumptions, CO2 reduction levels, the target date, and most crucially, how the plan is implemented.

If there is any consensus at all, it is on the point that we can accomplish reductions in global CO2 emissions haphazardly and in a disorganized and uncoordinated way – which will cost a fortune – or we can do it cleverly and efficiently – which will cost far less. So far, all indications are that we are on the former course, and this is a pity.
Carbon tax or cap and trade

Potential impact of a $15 tax on a ton of CO2 (left) and a 15% cut in CO2 emissions (right)

In mid August, the United Nations Framework Convention on Climate Change (UNFCCC) released a detailed study estimating it would cost around $200 billion per year if we were to return to today’s emission levels by 2030. This level of reduction is based on scientific assessment that global GHG emissions must be curbed so they will peak no later than 2015-2020 and are reduced thereafter to avoid potentially catastrophic consequences. The report identified annual investments of $148 billion to be channeled to renewable energy, nuclear power, hydro and carbon capture and sequestration (CCS). Other major investments are noted in chart below....MORE