# Presentation: 710240

## Flexibility With No

**Flexibility With No**
**Regrets:  **
**Energy Efficiency, Tax Reforms, and the Economics of Cutting**
**Carbon Emissions in the United States**
**Florentin Krause**
**Director****International Project for Sustainable Energy Paths (IPSEP)**
- Presentation at the NREL Analysis Seminar
- Washington, DC, January 9, 2003

## Research Co-authors

*** ****Stephen J. DeCanio****Department of Economics, University of California, Santa Barbara**

*******J. Andrew Hoerner****Center for a Sustainable Economy, Washington, DC**

*** ****Paul Baer****Energy and Resources Group, University of California, Berkeley**

***Published in: Contemporary Economic Policy, **
**Vol. 20, No. 4, October 2002, 339-365**

## Before we begin....

***   Economic analysis *****does not and cannot***** provide**
**        ****all the answers on climate policy**

***  The *****distribution of costs, benefits, and consequences***
***         ******across generations***** *****and world regions***** can only be **
**         ****addressed properly in a moral/ethical framework**

***  The mounting scientific evidence of anthropogenic **
**        ****climate change implies that a *****policy response will***
***        ******be necessary; *****orderly and moderate measures are**
**        ****preferable to a crisis response**

***  Climate policy offers a *****remarkable opportunity for ***
***         ******bipartisan consensus***

## Policies Available to Reach Kyoto Target at Least Cost:

- Carbon tax or permit auctions
- Revenue recycling to reduce tax distortions
- Institutional and market reforms
- Enhanced R&D
- International permit trading
- Credits for carbon sinks

## None of the Studies Relied on by the United States Government Included All Major Policy Options

- EIA (1998), EMF-16 (1999), CEA (1998), IWG (1997) IWG-CEF (2000)
- All the studies modeled a “carbon price”
- None of the studies measured co-benefits
- Only IWG and CEF incorporated market reforms
***Only IPSEP (2001) analyzed an integrated approach encompassing all policies, including tax shifting***

## Policy Analysis Gaps...

## Incomplete system boundaries...

## GDP

- Emissions Reductions

- GDP0 - GDP1 = “Substitution Effect”

- “Conventional Wisdom”:  A Tradeoff between
- Economic Output and Emissions Reductions

- GDP0

- GDP1

- Carbon Charge

## GDP

- Emissions Reductions

- Reality:  A “Band of Possibility” that Describes
- What the Economy Can Accomplish

- Efficiency Enhancements, R&D

**Band of Economic**
**Possibilities**

- GDP0

- GDP1

- GDP2

*Smart policies can increase GDP*
***and**** reduce emissions:*
*GDP**2** > GDP**0*

- Tax Reform

- Carbon Charge

- BAU

## Slide 10

## Slide 11

**Notes:**
Alternative ways to achieve the Kyoto target, 2010

## Slide 12

## Slide 13

**Notes:**
Benefits of an integrated least-cost strategy

## Slide 14

**Notes:**
Credits for sinks makes little difference

## Distribution of U.S. jobs in 1995 (Total = 132 million)

## Impact of CEF scenario plus payroll tax rebate on prices of U.S. exports ($50/tC)

## Energy sector impacts of alternative U.S. climate policy strategies in 2010

## Until very recently, China’s greenhouse gas emissions were growing rapidly

**Carbon Emissions by Country, 1980-1997**

## But energy—coal—consumption began to fall after 1996

**But energy—coal—consumption began to fall after 1996**

***Coal Use by Sector, 1980-1998, and Projections***

**Notes:**
In a period of increasing economic activity, China’s coal use dropped, and is much less than what was projected just a few years ago.

## Change in China’s emissions outlook recognized since 2001 in EIA’s International Energy Outlook

## Projections of carbon emissions may need to be revised further downwards

**Notes:**
No other country has managed to reduce absolute GHG emissions during a period of economic growth.

The data have been challenged. After a careful review, our conclusions are basically the same as where we started—this appears to be a real phenomenon.

## National and Global Equity Factors (income of poorest segment rel. to average income)

## Conclusions

- Inadequate economic analysis contributed to the U.S. Kyoto policy debacle
- International trading, sinks, “supplementarity” should not have been deal-breakers
*Domestic actions* are the key to least-cost emissions reductions:  *efficiency improvements* and *tax shifting*
*Almost all U.S. industries would benefit, and workers in losing sectors could be compensated*.
- Early caps on emissions of developing countries are unnecessary and would be unfair