Climate Change: Expert Opinion on the Economics of Policy Options to Address Climate Change
Published: 2008-05-09T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Elevated levels of greenhouse gases in the atmosphere and the resulting effects on the earth's climate could have significant environmental and economic impacts in the United States and internationally. Potential impacts include rising sea levels and a shift in the intensity and frequency of floods and storms. Proposed responses to climate change include adapting to the possible impacts by planning and improving protective infrastructure, and reducing greenhouse gas emissions directly through regulation or the promotion of low-emissions technologies. Because most U.S. emissions stem from the combustion of fossil fuels such as coal, oil, and natural gas, much of this report centers on the effect emissions regulation could have on the economy. In this context, GAO was asked to elicit the opinions of experts on (1) actions the Congress might consider to address climate change and what is known about the potential benefits, costs, and uncertainties of these actions and (2) the key strengths and limitations of policies or actions to address climate change. GAO worked with the National Academy of Sciences to identify a panel of noted economists with expertise in analyzing the economic impacts of climate change policies and gathered their opinions through iterative, Web-based questionnaires. The findings reported here represent the views of the 18 economists who responded to both questionnaires.
section_title: What GAO Found
paragraphs: All of the panelists agreed that the Congress should consider using a market-based mechanism to establish a price on greenhouse gas emissions, and 14 of the 18 panelists recommended additional actions as part of a portfolio to address climate change, such as investment in research and development of low-emissions technologies. Experts differed on the initial stringency of the market-based mechanism, with 14 of the 18 panelists recommending an initial price between less than $1 and $20 per ton of emissions. In addition, 14 of 18 panelists were at least moderately certain that the benefits of their recommended portfolio of actions would outweigh the costs. To establish a price on emissions, most of the panelists preferred either a tax on emissions or a hybrid policy that incorporates features of both a tax and a cap-and-trade program. A tax would set a fixed price on every ton of emissions, whereas a cap-and-trade program would limit or cap total emissions and establish a market for trading (buying and selling) permits to emit a specific amount of greenhouse gases. Under the cap-and-trade system, the market would determine the price of emissions. A hybrid system differs from a traditional cap-and-trade system in that the government would cap emissions, but could sell additional emissions permits if the permit price rose above a predetermined level. Panelists also identified general categories of benefits, such as avoided climate change damages, and costs, such as increases in energy prices, associated with their recommended actions. Overall the panel rated estimates of costs as more useful than estimates of benefits for informing congressional decision making, with some panelists citing uncertainties associated with the future impacts of climate change as limitations to estimating benefits. Further, the majority of panelists agreed that the United States should establish a price on greenhouse gas emissions as soon as possible regardless of the extent to which other countries adopt similar policies. At the same time, the majority of panelists said it was at least somewhat important to participate in international negotiations on climate change. Panelists identified key strengths and limitations of alternative policy approaches that should be of assistance to the Congress in weighing the potential benefits and costs of different policies for addressing climate change. Many panelists said that a cap-and-trade program would be more effective in achieving a desired level of greenhouse gas emissions because, unlike a tax, it would provide certainty that emissions wouldn't exceed a certain level. However, some of the panelists also said that taxes would be more cost-effective than a cap-and-trade program because the price of emissions would be certain and not susceptible to market fluctuations. Eight panelists therefore preferred a hybrid approach that incorporates features of both a tax and a cap-and-trade program. On average, the panelists rated cost effectiveness as the most important criterion for evaluating various policy options. Finally, panelists said an important strength of using a market-based approach is the ability for the government to raise revenue through a tax or the sale of emissions permits and to use that revenue to offset the adverse effects of the policy.

section_title: Letter
paragraphs: Changes in the earth’s climate attributable to increased concentrations of  greenhouse gases may have significant environmental and economic  impacts in the United States and internationally. Among other potential  impacts, climate change could threaten coastal areas with rising sea levels,  alter agricultural productivity, and increase the intensity and frequency of  floods and tropical storms. Furthermore, climate change has implications  for the fiscal health of the federal government, affecting federal crop and  flood insurance programs, and placing new stresses on infrastructure and  natural resources. ), nitrous oxide  (NO), and synthetic gases (hydrofluorocarbons {HFCs}, perfluorocarbons {PFCs}, and  sulfur hexafluoride {SF}). between pre-industrial times and 2005. The IPCC has determined that 11  of the 12 warmest years on record occurred between 1995 and 2006 and  expects that global mean temperatures will continue to rise over the next  century as a result of increased atmospheric concentrations of greenhouse  gases.
In 2006, carbon dioxide released from the burning of fossil fuels accounted  for approximately 78 percent of anthropogenic greenhouse gas emissions  in the United States. The remaining 22 percent of emissions included  carbon dioxide from nonenergy use of fossil fuels and iron and steel  production; methane from landfills, coal mines, oil and gas operations, and  agriculture; nitrous oxide from fossil fuels, fertilizers, and industrial  processes; and other gases emitted from processes such as refrigeration,  air conditioning, and semiconductor manufacturing.
Environmental Protection Agency (EPA), 2008, Inventory of U.S. Greenhouse Gas  Emissions and Sinks, 1990-2006, Public Review Draft (Washington, D.C.: Apr. 18, 2008).
2007, the Conference of Parties, the supreme body of the Framework  Convention, announced the launch of the Bali Action Plan, a  comprehensive process that is expected to lead to a decision in 2009 on  steps for countries to take on a post-2012 framework.
Instead of adopting limits on emissions, the United States government has  addressed climate change with policies that fall into three main categories:  (1) programs targeted at enhancing the scientific understanding of climate  change, including the Climate Change Science Program (CCSP), directed  by the Assistant Secretary of Commerce for Oceans and Atmosphere; (2)  programs that support research, development, and deployment of new  technologies that could reduce emissions and improve energy efficiency,  including the Climate Change Technology Program (CCTP), led by the  Department of Energy; and (3) voluntary programs designed to encourage  private and public sector entities to curb their greenhouse gas emissions  by providing technical assistance, education, and information sharing,  including the Environmental Protection Agency’s Climate Leaders  Program.
The Congress is currently considering various proposals to further address  climate change, including actions to mitigate emissions.
In the context of the United Nation’s Framework Convention on Climate Change,  mitigation is a human intervention to reduce the sources or enhance the sinks of  greenhouse gases. Examples include using fossil fuels more efficiently for industrial  processes or electricity generation, switching to solar energy or wind power, improving the  insulation of buildings, and expanding forests and other sinks to remove greater amounts  of carbon dioxide from the atmosphere. Forests and other vegetation are considered sinks  because they remove carbon dioxide through photosynthesis. allowances. For example, firms that find ways to reduce their carbon  dioxide emissions below their allowed limit could earn revenue by selling  their excess allowances to firms that emit more than their limits. In this  manner the market would establish a price for a ton of carbon dioxide  emissions based on the supply and demand embodied in such trades.  Although the program would provide greater certainty that the level of  annual emissions would not increase beyond the emissions cap, the cost  of the program could vary, depending on factors such as changes in energy  prices. Currently, the United States uses a cap-and-trade program to limit  pollutants that cause acid rain emitted by electric utilities.
Another possible mitigation policy is a tax on greenhouse gas emissions. A  tax would establish a price on emissions by levying a charge on every ton  of carbon dioxide emitted, creating an economic incentive for emitters of  greenhouse gases to decrease their emissions by, for example, using fossil  fuels more efficiently. Unlike a cap-and-trade program, a tax would  provide certainty as to the cost of emitting greenhouse gas emissions, but  the precise effect of the tax in reducing emissions would depend on the  extent to which producers and consumers respond to higher prices.
The Congress is also considering policies that, unlike a cap-and-trade  system or a tax, are not based on establishing a market for greenhouse gas  emissions. These options include regulatory approaches, such as  standards to increase energy efficiency or the use of renewable energy,  and nonregulatory approaches, such as investment in research and  development of technologies to reduce emissions. The Congress is also  considering measures to adapt to climate change, such as developing  protective coastal infrastructure to reduce the impact of rising sea levels.  The potential benefits and costs associated with a policy, or combination  of policies, depend on factors such as their stringency, timing, and  effectiveness of stabilizing or reducing greenhouse gas concentrations.
Much of the debate over the direction of U.S. policy to address climate  change has centered on the effects that further policy actions could have  on economic growth. For decades, economists have sought to inform this  debate by analyzing the potential benefits and costs of actions to address  climate change. The benefits of such actions could include avoided  damages that may result from changing temperatures. For example, many  scientists believe slowing the increase in global mean temperatures and  the related rise in sea level may limit damage to coastal areas, which are  home to the majority of the U.S. population and account for nearly one- third of the gross domestic product. On the other hand, actions to  address climate change would impose costs because most emissions stem  from the combustion of fossil fuels, which constitute the majority of the  nation’s energy supply. Thus, actions to mitigate emissions would likely  impose higher costs on producers and users of fossil fuels.
To analyze the economic impacts of different policies for addressing  climate change, economists have developed sophisticated models that  incorporate historical data on the economic effects of changes in energy  prices and assumptions about future economic and climatic conditions.  These models focus primarily on the benefits and costs of using market- based mechanisms to impose a price on greenhouse gas emissions and  generally place a greater emphasis on analyzing the effect on market  goods and services, such as fossil fuels, that have readily available prices,  than on analyzing the effect on nonmarket goods such as ecological  impacts. Key assumptions underlying these models include the degree of  international cooperation in mitigating emissions, the rate of technological  change, the sensitivity of the climate to changes in emissions, and the  degree to which societies adapt to the impacts of climate change.
In using the models to estimate the benefits and costs associated with  controlling greenhouse gas emissions, economists have estimated the  potential economic effect of establishing a price on greenhouse gas  emissions. According to economic theory, the appropriate emissions price  should reflect the social costs that result from emissions. For example, in  a survey of the economic literature, the IPCC reported that estimates of  the damages associated with current greenhouse gas emissions—impacts  on public health, ecosystems, and industry—average about $12 per metric  ton of carbon dioxide, with a range from $3 to $95 per ton (2005 dollars).  The wide range of estimates primarily reflects differences in the models  used and key assumptions.
In this context, you asked us to elicit the opinions of experts in the field of  climate change economics on (1) actions the Congress might consider to  address climate change and what is known about the potential benefits,  costs, and related uncertainties of these actions and (2) the key strengths  and limitations of policies or actions to address climate change. To  respond to these objectives, we collaborated with the National Academy  of Sciences (NAS) to identify and recruit experts with experience  analyzing the economic effects of climate change policies. NAS recruited  25 experts affiliated with U.S.-based institutions who have conducted  research on the benefits, costs, or uncertainties associated with actions to  address climate change, and with in-depth experience in assessing the  economic impacts and trade-offs of climate change policies. The experts  who served on the panel represent the range of existing research on the  economics of climate change, with expertise in areas such as  environmental, natural resource, and agricultural economics, and some  have served as advisors to the United States government, including as  members of the Council of Economic Advisors under the current and  former administrations.
To address the first and second objectives, we (1) reviewed relevant  climate change academic literature and documents developed by federal  agencies and (2) met with agency officials from the Environmental  Protection Agency (EPA); the Department of Energy (DOE), including the  Energy Information Administration (EIA); the Department of Commerce,  including the National Oceanic and Atmospheric Administration (NOAA);  the United States Department of Agriculture (USDA); and the National  Aeronautics and Space Administration (NASA). To structure our questions  and gather opinions from the panelists on our objectives, we used a  modified Delphi method, an iterative and controlled feedback approach.  With two Web-based questionnaires, we first gathered opinions from the  panel on the key topics, and used their responses to develop the second  round of questions. In the second round, panelists reacted to the issues  and topics discussed in the first round, answering primarily closed-ended  questions. We used this approach to eliminate the potential bias associated  with live group discussions, and to incorporate more panelists than a live  panel would allow. Including more panelists also enabled us to obtain the  broadest possible range of opinion. Of the 25 panelists NAS recruited to  participate, 21 agreed and were sent the first questionnaire. Nineteen  responded to the first questionnaire, and 18 responded to the second. After  the responses from the second round were compiled, the panelists were  given 2 weeks to comment on a summary of the results. In addition, we  followed up with several panelists to verify their responses and elaborate  on certain topics. The information presented in this report is primarily  from the second questionnaire and represents the views of the 18 experts  who participated in both rounds and not GAO’s (See app. I for a more  detailed description of our scope and methodology). We conducted our  work from September 2006 to May 2008.
subsections: section_title: Background
paragraphs: Greenhouse gases—including carbon dioxide, methane, nitrous oxide, and  other substances—trap a portion of the sun’s heat in the atmosphere and  prevent the heat from returning to space. The insulating effect, known as  the greenhouse effect, moderates atmospheric temperatures, keeping the  earth warm enough to support life. According to the Intergovernmental  Panel on Climate Change (IPCC), global atmospheric concentrations of  these greenhouse gases have increased markedly as a result of human  activities over the past 200 years, contributing to a warming of the earth’s  climate.
The IPCC generally attributes increases in average global air and ocean  temperatures, widespread melting of snow and ice, and rising mean global  sea levels to a warming of the earth’s climate system. Furthermore,  according to the IPCC, the oceans have absorbed more than 80 percent of  the heat added to the earth’s climate system, causing seawater to expand,  thereby contributing to sea level rise. Scientists have also reported that  mountain glaciers and snow cover have declined, on average, in both  hemispheres, and that widespread decreases in the sizes of glaciers and  polar ice caps, combined with losses in the ice sheets of Greenland and  Antarctica very likely contributed to a sea level rise of 0.17 meters during  the 20th century.
The effect of increases in atmospheric concentrations of greenhouse gases  and temperature on ecosystems and economic growth is expected to vary  across regions, countries, and economic sectors (see table 1).
For example, small island nations are particularly at risk because of their  vulnerability to sea level rise, poor coastal infrastructure, and economies  that rely heavily on coastal fishing and tourism. Alternatively, while  certain areas of the United States may be adversely affected by rising sea  levels, its diverse economy, significant resources, and established  infrastructure may help moderate the negative effects associated with  climate change. Figure 1 shows a selection of projected impacts from  climate change on different regions, assuming that greenhouse gas  emissions and concentrations continue to increase at current rates.
According to the IPCC, in 2004, developed countries, including the United  States, constituted 20 percent of global population, but were responsible  for nearly half of global greenhouse gas emissions. However, in the  absence of mitigation policies, the IPCC projects that between 2000 and  2030, two-thirds to three-quarters of the projected increase in global  carbon dioxide emissions will occur in developing countries.
subsections: section_title: Mitigating Greenhouse Gas Emissions
paragraphs: Many developed countries have begun to mitigate or reduce greenhouse  gas emissions by adopting policies such as carbon taxes, cap-and-trade  programs, energy efficiency standards, financial incentives (e.g., subsidies  or tax credits), voluntary agreements, education campaigns, and research,  development, and deployment of advanced technologies. For example,  the European Union Emission Trading Scheme (EU ETS) is a cap-and- trade system in which energy-intensive industries in the European Union  buy or sell emission allowances to help meet member states’ commitments  under the Kyoto Protocol. The EU ETS covers over 11,000 energy- intensive installations, such as oil refineries and steel plants, in 25 member  countries and covering nearly half of Europe’s carbon dioxide emissions.  Governments may also use a portfolio of policies; for example, a cap-and- trade system may be pursued in combination with energy efficiency  standards and financial incentives for certain sectors. Table 2 shows  selected policies and instruments that have been shown to be  environmentally effective at a national level.
In addition, carbon capture and storage can supplement other climate  change mitigation policies. Carbon capture and storage involves  separating and storing carbon dioxide from an industrial or energy-related  source, thereby preventing carbon dioxide emissions into the atmosphere.  Carbon capture and storage is most commonly used to enhance oil and gas  recovery in depleted fields. Efforts to capture carbon dioxide from power  generation or industrial processes are currently the main focus of research  and development of the technology. This process has the potential to  reduce emissions, but its widespread use may be limited by several  barriers, including technological feasibility, costs, regulatory issues, and  environmental concerns.
Another option is to allow for carbon offsets, which is a way for  consumers and producers to compensate for greenhouse gas emissions  occurring in one location by reducing or avoiding emissions somewhere  else. For example, a manufacturing facility in the United States could  compensate for its emissions by purchasing carbon offsets from a tree- planting project in South America. Carbon offsets are traded in  compliance markets, to satisfy requirements to limit emissions, and in  voluntary markets, where emissions reductions are not required but may  serve other purposes. For example, carbon offsets serve as a mechanism  for complying with the emissions reduction requirements of the EU ETS.  Under this scheme, certain regulated entities may choose to comply with  emissions limits by purchasing offsets rather than by reducing their own  emissions.
section_title: Adaptation Policies to Reduce Vulnerability to Climate Change
paragraphs: In addition to mitigating greenhouse gas emissions, policies to adapt to  climate change could help reduce the vulnerability of countries and  regions to potentially adverse impacts. For example, raising river or  coastal dikes could protect coastal communities and resources from sea  level rise. The vulnerability of a country or region depends on both on the  susceptibility of a political, economic, or natural system to the adverse  effects of climate change and the capacity of a society to adjust to the  expected change. For example, less developed economies may face  difficulty adapting to climate change because of poor infrastructure,  poverty, and resource constraints. Adaptation may be viewed as a risk- management strategy for protecting vulnerable countries, sectors, and  communities that might be affected by changes in the climate and related  impacts.
In December 2007, members of the Conference of the Parties to the  Framework Convention agreed to launch a comprehensive process that  will lead to the adoption of a decision in 2009 on next steps for countries  to take on climate change. This process, called the Bali Action Plan,  includes provisions that require signatories, including the United States, to  undertake efforts to enhance international cooperation on adaptation,  such as vulnerability assessments; capacity building; risk management;  and reduction strategies; and the integration of adaptation into planning  decisions.
section_title: Estimating the Potential Benefits and Costs of Actions to Address Climate Change
paragraphs: Economists and other researchers have developed integrated assessment  models that utilize economic and climate and other environmental data to  assess the economic consequences associated with different policies for  addressing climate change. These models vary in structure and scope, but  generally include historical data on the U.S. and international economies,  emissions and atmospheric concentrations of greenhouse gases, and  global temperature. Typically, economists use the models to estimate the  economic consequences of policy actions, by comparing the present  values of the economic costs of an action such as tax or cap and trade and  the future benefits it would be expected to generate, relative to a business- as-usual emissions projection (for example, no significant reductions in  greenhouse gas emissions). In judging whether a policy action would be  preferable, economists evaluate policies using criteria such as (1)  economic efficiency, where the action maximizes potential net benefits  (total benefits minus total costs), compared to business as usual and (2)  cost-effectiveness, where the action achieves the chosen policy objective,  such as an emissions reduction target, at least cost.
In general, the economic costs that society would incur from taking action  to address climate change will begin to occur immediately, while the  economic and environmental benefits will mainly occur decades in the  future as atmospheric concentrations of greenhouse gases and global  temperatures stabilize. The economic costs of taking action represent the  value of the goods and services that society would forgo to allocate  resources to the emissions control policy, including compliance  expenditures, administration and enforcement costs, and other costs that  the action might impose on the economy (for example, as a result of  higher prices). For example, because the energy sector and energy- intensive industries generate substantial emissions of greenhouse gases, a  significant component of the potential cost associated with actions to  address climate change relates to the impacts of changes in energy prices.  The economic costs of reducing emissions to stabilize atmospheric  greenhouse gas concentrations will increase as the stringency of emissions  reduction goals increase, and correspondingly, as the stabilization goal  decreases.
The potential economic benefits of policies to address climate change  generally consist of the effects of stabilizing or reducing the atmospheric  concentration of greenhouse gases and global temperature on human  welfare. Typically, benefits are measured in terms of the damages that  would be averted if an action were taken to address climate change. For  example, under a business-as-usual scenario, researchers project that  further increases in atmospheric concentrations of greenhouse gases and  global temperature could reduce agricultural productivity in certain parts  of the world, increase the incidence of diseases in certain climates, and  reduce the environmental goods and services provided by some  ecosystems. In addition, researchers have estimated that limiting  greenhouse gas emissions and slowing the increase in atmospheric  concentrations and global temperature would avoid some damages.
Estimating the potential benefits associated with actions to address  climate change, however, can pose challenges, partly because of  uncertainty about the magnitude of climate impacts and the resulting  effect on human welfare. In particular, scientists face challenges  estimating the effects of climate change at the regional and local level. In  addition, rising global temperature could involve unexpectedly abrupt  changes in the climate, which would be more costly than if changes are  more moderate. According to NAS, global warming and other human  alterations of the earth’s climate system may increase the possibility of  large and abrupt regional or global climatic events. However, NAS  concluded that because the abrupt climate changes of the past are not yet  fully explained, future abrupt changes cannot be predicted with any  confidence and climate surprises are to be expected. In addition, partly  because many of the environmental goods and services expected to be  affected by climate change are generally not bought and sold in markets, it  is difficult to develop reliable estimates of the value associated with the  damages expected from climate change.
Furthermore, estimating the economic consequences of various actions to  address climate change involves consideration of the fact that the benefits  and costs will occur in different time periods and should be expressed in  comparable present value terms. For example, because greenhouse gases  accumulate in the atmosphere over very long periods of time, the effect of  current actions to stabilize concentrations and global temperature might  take decades to manifest themselves. As a result, the future benefits and  costs of actions to address climate change are typically discounted (by  using a discount or interest rate) to estimate their present value. In  general, discounting is used to reflect the extent to which individuals trade  off current for future consumption. Nonetheless, because discounting  generally attaches a lower weight to future impacts compared to near-term  impacts, the choice of the discount rate is an important factor in assessing  the economic consequences of actions to address climate change.
Moreover, although the cost of any U.S. action to address climate change  will be primarily borne by U.S. producers and consumers, the economic  benefits associated with the action would also accrue to other countries  that face greater vulnerability to climate change. According to the IPCC,  the global distribution of climate change impacts varies throughout the  world and nonclimate stresses such as poverty and food insecurity can  increase a country’s vulnerability to climate change by reducing its  resilience and capacity to adapt. For example, the IPCC estimated that  Africa could face increased risk of water scarcity and reduced food  security. However, because African nations account for a negligible share  of total greenhouse gas emissions, it is expected that they will bear a much  smaller portion of the overall costs or responsibility for greenhouse gas  mitigation.
section_title: Climate Change Policies Currently under Consideration by the Congress
paragraphs: The eight climate change mitigation bills currently under consideration by  the Congress provide an overview of the potential for simultaneously  pursuing a portfolio of actions. All eight bills include provisions for a cap- and-trade system in combination with initiatives to promote the  development and adoption of low-carbon technologies. Also, three bills  would require that a specific amount of electricity be generated by  renewable energy—generally called a Renewable Portfolio Standard— including wind and solar energy, and energy efficiency performance  standards. Five bills would apply the emissions caps to specific sectors of  the economy, such as electricity, transportation, and industry, while caps  under the other three would not be limited to specific economic sectors.
section_title: Despite Some Uncertainty Regarding the Potential Economic Impact, All of the Panelists Supported Establishing a Price on Greenhouse Gas Emissions
paragraphs: All of the panelists agreed that the Congress should consider establishing a  price on greenhouse gas emissions using a market-based mechanism, but  they expressed differing views on the type of mechanism and its  stringency. In addition, 14 of the 18 panelists were at least moderately  certain that the benefits of their suggested portfolio of actions would  outweigh the costs. Most of the panelists identified either a tax on  emissions or a cap-and-trade program with a safety valve as the preferred  mechanism to establish a price on emissions, and the majority believed a  portfolio of additional actions to address climate change could  complement the market-based mechanism. Some panelists also identified  general categories of benefits and costs associated with their  recommended actions, and rated the usefulness of benefit and cost  estimates derived from integrated assessment models. Overall the panel  rated estimates of costs as more useful than estimates of benefits for  informing congressional decision making, with some panelists citing  uncertainties associated with the future impacts of climate change as a  limitation to estimating benefits. Finally, while some panelists said that the  United States should proceed cautiously if it acts unilaterally, the majority  of panelists agreed that it should establish a price on greenhouse gas  emissions as soon as possible regardless of the extent to which other  countries adopt similar policies.
subsections: section_title: All of the Panelists Agreed that the Congress Should Consider Establishing a Price On Greenhouse Gas Emissions, and the Majority Recommended Complementary Policies
paragraphs: All of the panelists agreed that the Congress should consider a market- based mechanism to establish a price on greenhouse gas emissions and  supported implementation of the policy by 2015. Opinions varied on  whether the Congress should implement a cap-and-trade system or a tax to  control greenhouse gas emissions, with eight panelists preferring a cap- and-trade program with a safety valve (sometimes referred to as a hybrid  system), seven preferring a tax, and three preferring a cap-and-trade  program. All of the panelists agreed that the policy should target all  sectors of the economy, and the majority believed that it should include all  greenhouse gases. For example, one panelist stated that by establishing a  price on emissions from all sources in the United States with no  exceptions, the policy would equilibrate the marginal cost of reducing  emissions across all sources, making it economically efficient.
The panelists varied in their views on the stringency of the market-based  regulatory mechanism that they supported to place a price on greenhouse  gas emissions. For example, in proposing an initial price on emissions,  seven panelists said it should range from less than $1 to $10, six said from  $11 to $20, and four said it should be greater than $20 (2007 dollars per  metric ton of carbon dioxide equivalent). In addition, while most  panelists said the price should increase over time, they varied in their  views on the preferred rate of increase. For example, some panelists  provided estimates ranging from 2 percent to 5 percent per year adjusted  for inflation, while another panelist said more generally that it should be  reevaluated periodically (for example, every 5 years) and rise as marginal  damages of climate change rise. Some panelists noted the importance of a  long-term commitment to establish a price on emissions and the flexibility  to adjust the price and rate of increase as new information becomes  available. For example, one panelist stated that certainty in setting  emissions reductions goals was necessary for firms that would have to  make substantial investments in new emissions reduction technologies.
Another panelist added that while the program should run into the distant  future, it should include an explicit feature to revise taxes or emissions  targets based on near-term mitigation experience, new research on climate  change science and impacts, and actions by other countries.
Under a hybrid approach, the government would establish a cap-and-trade  system with a safety valve, a mechanism under which the government  would sell additional permits if the market price exceeded a  predetermined level, which would represent the maximum permit price  and thus an upper limit on control costs. A safety valve price would be  established, which would represent the maximum permit price and thus an  upper limit on control costs. Panelists preferring a hybrid policy varied in  their recommendations for an initial safety valve price, with five preferring  a safety valve price identical or close to their targeted initial market price  for greenhouse gas emissions and two recommending a price moderately  or well above their recommended market price (see app. II for additional  information on this topic). For example, a panelist recommending a  targeted initial market price of $0.55 per metric ton of emissions (in  carbon dioxide equivalent) recommended an identical safety valve price,  adding that the price should not be much higher than the targeted  marginal cost of reducing emissions. Another panelist recommending an  initial market price between $11 and $20 said that the safety valve should  depend on the stringency of the policy. When providing an example, the  panelist added that if the initial market price per metric ton of emissions  was $20, then the safety valve should be set three to four times above the  initial price of emissions, or between $60 and $80 (See app. II for  additional information on this topic).
In addition, seven of the eight panelists that prefer a hybrid policy believe  that the price of the safety valve should increase over time, and the  majority of panelists said that the safety valve should be reevaluated  periodically based on new information. For example, one panelist said that  the safety valve price should increase by 2.5 percent plus inflation  annually, and that the government should reevaluate the stringency of the  policy every 5 to 10 years based on new information. Another panelist said  that the safety valve provision could be abandoned altogether after a  periodic review of the adequacy of the policy and its costs.
Overall, eight of the panelists said that a market-based mechanism should  be imposed “upstream,” where fossil fuels first enter the economy, four  preferred a “downstream” mechanism that regulated direct and indirect  emitters, and five preferred a mechanism with both upstream and  downstream components. An upstream system would require fossil fuel  producers, such as extractors and processors, and importers, to pay a tax  or to hold permits based on the carbon content of the fuels. Alternatively,  a downstream system would regulate sources such as electric utilities that  combust fossil fuels and emit greenhouse gases. While environmental  effectiveness would likely be the same under either approach, one panelist  said that an upstream policy would have lower administrative costs when  compared to a downstream system partly because it involves a much more  manageable set of firms. Of the panelists who said they preferred a  combination of upstream and downstream provisions, three preferred a  policy that had downstream provisions for carbon capture and storage  from utilities or other processes that remove carbon from the atmosphere.  See appendix II for additional information on experts’ preferred design for  a market-based policy.
In the second round questionnaire, we asked panelists to rate the  importance of complementary actions to address climate change that had  been recommended in the first round. We also asked panelists to identify  their recommended portfolio of actions for the Congress to consider.  When rating the importance of recommended actions, the panelists gave  the highest average ratings to funding of research, development, and  deployment of zero-carbon and low-carbon technologies, and participation  in international negotiations (see fig. 2 and app. III for more detail). For  example, recognizing that the private sector may not invest in some  technologies, one panelist recommended public investment to accelerate  development of carbon capture and storage from electricity generation.  This panelist also advocated expanded research into climate change  adaptation in the southern United States and in developing countries for  agriculture, forestry, and fisheries, emphasizing the importance of  preparing for inevitable climate impacts. Another panelist recommended  that the United States engage in international negotiations to make similar  emissions reductions commitments, and added that the United States  should consider helping other countries meet their targets as a part of  international aid.
When recommending a portfolio of policy options for the Congress to  consider, 14 of the 18 panelists identified actions to address climate  change in addition to placing a price on greenhouse gas emissions (see  app II, table 4, for more detail). Of the 14 holding this view, 10 said  research and development in low- or zero-carbon technologies or research  in the basic science of climate change should be part of the portfolio, 7  said international negotiations or assistance to developing countries  should be included, and 6 said adaptation should factor into a portfolio of  actions (see app. II, table 4, for more detail). When asked how certain they  were that their recommended portfolio of actions to address climate  change were economically justified, 14 of the 18 panelists were at least  moderately certain that the benefits of their suggested actions would  outweigh the costs. The remaining 4 panelists did not know or did not  provide a response to this question.
section_title: Panelists Described the Potential Benefits and Costs of Actions to Address Climate Change
paragraphs: In the first questionnaire, we asked panelists to identify potential  categories of costs and benefits associated with actions to address climate  change. In the second questionnaire, we asked them to rate the  importance of categories of benefits as a rationale for addressing climate  change. On average, panelists rated avoiding damages such as those from  flooding, impacts on sensitive ecosystems, public health, and species loss  as the most important category of potential benefits (see fig. 3 and app. III  for more detail). In addition, panelists rated reducing risk of extreme or  irreversible climate events as the second most important category of  potential benefits. For example, one panelist discussed the benefits of  reducing the probability of abrupt or catastrophic climate events such as  dramatic sea level rise by stabilizing atmospheric concentrations of  greenhouse gases. Another noted the importance of avoiding damages by  reducing the risks of vulnerability to water scarcity, hunger, or the  frequency of storm events.
The panelists also rated establishing a price signal to influence market or  individual behavior and facilitating international cooperation on climate  change as an important category of benefits that could serve as a rationale  for actions to address climate change. For example, one panelist stated  that the United States needs an unavoidable price signal to fully harness  the innovativeness of the U.S. industrial and scientific communities and to  provide incentives to reduce emissions. Another panelist stated that a  modest near-term market-based policy could provide an opportunity to  learn about the effectiveness of an emissions tax or cap-and-trade  program, and stimulate research to inform the stringency of future  policies.
In the first questionnaire, some panelists presented estimates of the costs  that would be associated with their proposed actions to address climate  change. Panelists’ estimates of the impacts on social welfare, including the  effects on economic growth, varied depending on the type and stringency  of the policy recommended. Some panelists cited their own research and  other academic studies, as well as several assessment reports by domestic  and international governmental entities, as credible estimates of the  economic costs associated with their proposed actions, but some noted  that policy choice and stringency can have a large impact on the cost  estimates. For example, one panelist cited a recent modeling effort by the  U.S. Climate Change Science Program (CCSP) that projected that by 2060,  gross world product (GWP) would decline by between 0 and 6.7 percent  per year under emissions reduction scenarios that achieved different  levels of atmospheric stabilization of greenhouse gases. However,  another panelist stated that welfare cost estimates from the study could be  reduced by as much as 50 percent by incorporating certain policy features  such as carbon offsets into the study’s policy scenario. Further, another  panelist added that it is difficult to provide a comprehensive list of  potential costs given the breadth of possible policy scenarios.
Some panelists also commented on the effect of their suggested actions on  energy prices. For example, one panelist said that a mandatory emissions  reduction program that establishes a price around $20 per ton of carbon  dioxide (2005 dollars) would increase gasoline prices by approximately 20  cents per gallon and residential electricity prices by approximately 1 cent  per kilowatt hour above business as usual estimates. Another expert  estimated that a $20 price per ton of carbon dioxide equivalent would  result in a 10 percent increase in consumer energy prices. Both experts  cited a recent study by the Energy Information Administration on energy  market impacts of alternative greenhouse gas reduction policies to  support their estimates.
Finally, in responding to our first questionnaire, panelists were asked to  identify key assumptions that they made in describing the estimates of the  benefits and costs of their proposed actions to address climate change. In  the second questionnaire, the panelists rated the importance of the  assumptions in terms of affecting the benefits and costs estimates  generated by integrated assessment models (see app. III for more detail).  Figure 4 illustrates the opinion of panelists on the importance of various  assumptions made in developing estimates using integrated assessment  models. Assumptions that panelists identified as the most important were  the real discount rate (interest rate used for discounting, adjusted for  inflation) for assessing the benefits and costs of climate change, and the  inclusion of all economic sectors in policies to address climate change.  With respect to discounting future benefits and costs, we asked panelists  to identify a reasonable estimate for the discount rate. Fifteen panelists  responded with estimates ranging from 0 to 5 percent.
section_title: Panelists Rated Estimates of Costs of Actions to Address Climate Change as More Useful than Estimates of Benefits, Citing Uncertainties Associated with Future Impacts
paragraphs: Citing uncertainties associated with the potential future impacts of climate  change, and the difficulties of estimating their economic impacts, panelists  rated cost estimates from integrated assessment models as more useful for  informing congressional decision making than benefit estimates. While  panelists identified challenges in estimating costs such as predicting future  technological development and additional costs associated with inefficient  policy designs, 10 panelists stated that the estimates of costs were quite or  extremely useful, whereas the majority of panelists said that estimates of  benefits were only somewhat or moderately useful. However, all of the  panelists that responded to the applicable questions on this topic said that  the estimates of costs and benefits from integrated assessment models  were at least somewhat useful. Panelists provided a number of rationales  for their opinions on integrated assessment models. For example, one  panelist said that costs were easier to estimate primarily because  economists have historical data that can be used to model the effect of  changes in energy prices. Conversely, one panelist stated that the benefits  of emissions mitigation are poorly understood because they are based on a  limited understanding about the climate system. Another panelist added  that even though researchers have put substantial effort into quantifying  the avoided damages of actions to address climate change, they are still  highly speculative.
When asked to rate the relative importance of uncertainties that may  affect the estimated benefits and costs in integrated assessment models  identified in the first questionnaire, on average, the panelists rated  thresholds and abrupt changes in the climate system as the most  important uncertainty, followed by the science of climate change, and the  economic effect of actions to address climate change (see fig. 5 and app.  III for more detail). Additionally, the panelists identified how society will  adapt to climate change as an important uncertainty affecting benefit and  cost estimates. When asked how to best address risk and uncertainty in  economic assessments of climate change policies, two panelists said it  was important to provide additional information on uncertainties  associated with low-probability, high-impact climate change events. For  example, one panelist said that the limited treatment of low-probability  high-impact uncertainty associated with high temperature changes is the  biggest unsolved problem driving a complete economic analysis. Other  panelists said it was important to provide decision makers with  descriptions of the risks of climate change, including distributions of  probable impact scenarios under various policy approaches. For example,  one panelist said that ideally, economic assessments should fully  characterize uncertainties by providing decision makers with probability  distributions over prospective outcomes.
Despite the challenges associated with estimating benefits and costs using  integrated assessment models, several panelists cited them as valuable  tools for informing judgment on climate change policy. For example, one  panelist said that integrated assessment models are the only tools that can  assemble all of the factors surrounding the climate issue to assess  potential emissions mitigation and adaptation strategies. When asked to  identify steps that the Congress could take to help economists and other  researchers address the most important uncertainties, most of the  panelists that responded expressed the need for continued funding of  research to improve understanding of the science and economics of  climate change.
section_title: The Majority of Panelists Said That the United States Should Begin to Control Emissions Soon, Regardless of International Participation
paragraphs: The majority of panelists said that if the United States acts unilaterally to  establish a price on greenhouse gas emissions, they would not change  their conclusions that their recommended actions were economically  justified. While some panelists said that the United States should proceed  cautiously if it acts unilaterally, 16 of 18 panelists agreed that the United  States should establish a price on greenhouse gas emissions as soon as  possible, regardless of the extent to which other countries adopt similar  policies. Nonetheless, the majority of the panelists said that it was  important for the United States to participate in international negotiations  to facilitate climate agreements or to enhance the credibility or influence  of the United States. In addition, some panelists noted the importance of  participation by other countries, recommending that the United States act  conservatively in the absence of action by other high-emitting nations. For  example, one panelist said that the U.S. government should also engage in  international negotiations to ensure other nations make a similar  commitment. In emphasizing the importance of global participation, the  panelist said that without it, a U.S. emissions reduction program would be  undercut.
When asked whether U.S. action to establish a price on greenhouse gas  emissions in the absence of action by other high-emitting nations (e.g.,  India, China, Brazil) would have a negative or positive effect on the ability  of U.S. companies to compete with similar companies in other countries,  10 out of 18 panelists said the effect would be negative, 7 said it would be  neither positive or negative, and 1 did not know or was not sure.
Moreover, several panelists said that energy-intensive industries such as  chemicals and metals, as well as the coal sector, would experience the  most negative effects if the United States established a price on  greenhouse gases in the absence of such actions in other high-emitting  nations.
On the other hand, one panelist remarked that the major impacts would  not necessarily come from international trade, adding that the main effect  of U.S. action would be on electricity production, which is not generally  traded internationally. Another panelist said that competitiveness is only  one factor if the United States takes action to mitigate greenhouse gas  emissions and the other key countries do not. The most important factor,  this panelist noted, is that in the absence of action by other high-emitters a  large investment in abatement of emissions by the United States will be  wasted because it will not achieve a corresponding improvement in the  environment.
section_title: The Panelists’ Views on the Strengths and Limitations of Policy Options Focused Primarily on the Environmental Certainty of a Cap- and-Trade System versus the Efficiency of a Tax on Emissions
paragraphs: The panel provided their opinions on the strengths and limitations  associated with various policy options to address climate change, and  focused on the key trade-offs between a tax on emissions or a cap-and- trade system. Panelists first identified criteria for evaluating policy options  and then discussed the strengths and limitations of different policy options  within this context. The most important trade-offs identified by panelists  focused on the environmental effectiveness of a cap-and-trade system  versus the economic efficiency of a tax on emissions. While panelists  viewed other policy options less favorably, they cited their potential as a  complement to a market-based mechanism. These expert opinions should  be of assistance to the Congress in weighing the potential benefits and  costs of different policies for addressing climate change.
subsections: section_title: Panelists Rated the Importance of Criteria for Evaluating Policy Options
paragraphs: In our first questionnaire, panelists identified criteria that they believe the  Congress should consider in evaluating the various actions and policy  options for addressing climate change. In the second questionnaire,  panelists rated the importance of those criteria, such as economic  efficiency and environmental effectiveness. Economic efficiency is used to  assess whether a policy alternative would maximize net benefits (that is,  where marginal benefits equal marginal costs) to society, and  environmental effectiveness means that the policy implemented has the  desired environmental result. The criteria were divided into two  categories: efficiency-related criteria, such as economic efficiency,  environmental effectiveness, cost effectiveness, flexibility and adaptability  of policies; and equity-related criteria, such as political feasibility, impact  on international negotiations, and the distribution of costs and benefits  among generations and countries. On average, the panelists rated cost  effectiveness and political feasibility as the most important criteria (see  fig. 6 and app. III for more detail).
section_title: The Most Important Trade- offs are between the Relative Effectiveness of Cap-and-Trade Systems and the Relative Efficiency of Taxes
paragraphs: When asked to identify their preferred policy options, 8 of the 18 panelists  said that they prefer a cap and trade with a safety valve as a way to  combine some elements of both a cap-and-trade system and a tax. Some  panelists noted that a traditional cap-and-trade system would provide  more environmental certainty; that is, it would more likely achieve specific  emissions reductions because the policy caps the total amount of  emissions at a specific level. On the other hand, several panelists said a tax  on emissions would be more economically efficient, citing, for example, its  ability to provide certainty about marginal abatement costs associated  with controlling greenhouse gases and avoiding price volatility that could  occur in a permit market. In addition, some noted that a cap-and-trade  program can be more administratively burdensome than a tax.  Nonetheless, some of the panelists that preferred a tax said that a cap-and- trade program, especially if it included cost minimizing components,  would be an acceptable second option to address climate change.
The majority of panelists supporting a safety valve cited the potential for  limiting volatility as an important rationale for incorporating a safety valve  into a cap-and-trade program. In addition, some panelists cited uncertainty  regarding the marginal costs and marginal benefits of complying with a  cap-and-trade program, and some cited the flexibility that it would provide  to decision makers to respond to new information as rationales for having  a safety valve. However, 3 panelists expressed concern regarding the  compatibility of a safety valve with an international greenhouse gas  trading system. For example, one panelist stated that under any realistic  safety valve system, the permits should be good only in the country of  issue. Otherwise, countries with higher market emissions prices could buy  permits in the United States, undermining their respective emissions  targets. Another panelist added that if the United States commits to  specific emissions targets as part of an international agreement, a safety  valve may affect the United States’ ability to meet those commitments. If  the safety valve is triggered, for example, emitters will be allowed to  purchase additional permits to emit above the targeted cap for emissions,  which may keep the United States from meeting agreed-to goals. Potential  solutions offered by panelists included abolishing the safety valve after the  emissions market has stabilized and then integrating into an international  system, and incorporating a quantitatively limited safety valve where a  limited number of permits were sold once the safety valve was reached.
A majority of the panelists said that the government should auction off  rather than give away at least a portion of the permits under a cap-and- trade system. The means by which the government distributes allowances  can have important economic implications. For example, the existing cap- and-trade programs for sulfur dioxide (a pollutant that causes acid rain)  and for carbon dioxide in the European Union give away most of the  allowances to regulated entities with a limited number of allowances  reserved for auction. The majority of panelists believed that the  government should use either a combination of auctioning and free  allocations or auctioning to distribute the allowances. In addition, we  asked the panelists to rate the importance of various actions to distribute  the revenue generated from auctioning allowances that could offset  adverse effects on consumers or particular sectors of the economy. On  average, the panelists rated using the revenues to reduce the tax burden  for low-income individuals as the most important way to distribute the  revenue (see fig. 7 and app. III for more detail). In addition, on average,  panelists rated using revenues to support research and development in  various areas, such as zero- or low-carbon technologies and carbon  capture and storage as at least moderately important.
section_title: The Panelists Viewed Other Policy Options Less Favorably but Cited Their Potential as a Complement to a Market-Based Mechanism
paragraphs: In the second questionnaire, we asked panelists to discuss the strengths  and weaknesses of other domestic policy options that would serve to  complement a tax or cap-and-trade system, but some viewed them less  favorably in the absence of a market-based mechanism. In weighing the  strengths and weaknesses of policy options, we asked panelists to discuss  research and development of technologies, adaptation to climate change,  revising efficiency standards, and reforming subsidies. For example,  several panelists noted that mechanisms such as vehicle fuel efficiency  standards would be unnecessary if the Congress enacted a mitigation  policy to place a price on carbon. Two panelists noted that setting  efficiency standards for vehicles was unlikely to yield cost-effective  reductions in emissions because greater fuel efficiency lowers the cost of  driving, potentially leading individuals to drive more. Table 3 reflects  examples cited by the panelists of strengths and limitations of specific  policy options.
The panelists cited the strengths and weaknesses of public investments in  the development and deployment of technologies that could reduce  emissions. Some suggested such efforts could complement a market-based  mitigation policy by, for example, lowering the costs of controlling  emissions and enhancing the likelihood of achieving long-term emissions  targets, while others noted that public investment may be unnecessary  with a mitigation policy in place. In addition, some panelists said that  while they supported research and development investment, it was not  enough on its own without additional policies to address climate change.  Further, several panelists also expressed concern about the government  picking what it perceives as “winning” technologies rather than funding a  broader research and development program.
A majority of panelists said that funding efforts to adapt to the impacts of  climate change were at least moderately important. Some panelists  identified actions the federal government could take to prepare for climate  change impacts such as reforming insurance subsidy programs in areas  vulnerable to natural disasters like hurricanes or flooding and creating  capacity within federal agencies to protect against and react to climate  change impacts. When discussing the strengths and weaknesses of actions  to adapt to climate change, several panelists noted that implementing  adaptation policies may help reduce vulnerabilities when faced with  inevitable climate change or in the event of possible catastrophic climate  change. One panelist referred to adaptation as a risk management strategy,  or form of insurance, against uncertain future events resulting from  climate change. Some panelists noted that a clear federal role exists for  certain sectors, such as water resource management and property rights  protection, which could require additional resources for infrastructure  development, research, and adapting practices to use alternative methods  for distributing water and managing federal lands. Another panelist said  that implementing adaptation policies could also help ensure greater  international and economic equity, since some areas likely to be affected  by climate change are underdeveloped, economically disadvantaged, or  vulnerable in some way to impacts. However, some panelists stated that  adaptation was difficult to define, making the federal role unclear, and  others said that incentives for adaptation may already exist, limiting the  need for a federally directed adaptation policy.
Panelists identified the strengths and limitations of other policy options to  address climate change, such as subsidy reform for alternative fuels or  energy-efficient technologies and research and development into the basic  science of climate change. For example, in rating the importance of  additional actions for the Congress to consider, 12 panelists rated  reforming subsidies for alternative fuels or energy-efficient technologies as  at least moderately important, and several panelists noted that subsidies  for alternative fuels or energy-efficient technologies are economically  inefficient or insufficient on their own without an appropriate mitigation  policy. Regarding research and development on the basic science of  climate change, several panelists said that it could help inform adaptation  efforts and reduce uncertainty of costs or benefits by improving  understanding of the potential dangers from climate change. However,  some panelists noted that additional funding of research and development  on the basic science of climate change is not warranted, citing reasons  such as a belief that it is adequately funded at current levels, it could be  used as an excuse to delay taking action to mitigate climate change, and  that the priority should instead be placed on adaptation efforts and  monitoring.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date.  At that time, we will send copies to House Committees on  Energy and Commerce; Natural Resources; Science and Technology;  Transportation and Infrastructure; and the Select Committee on Energy  Independence and Global Warming.  We will also provide the report to the  Senate Committees on Environment and Public Works; Energy and  Natural Resources; Commerce, Science and Transportation; and the Joint  Economic Committee. Copies will be made available to others on request,  and the report will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff have any questions regarding this report, please  contact me at (202) 512-3841 or stephensonj@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. Key contributors are listed in appendix VI.
section_title: Appendix I: Scope and Methodology
paragraphs: To address the first and second objectives, we (1) reviewed relevant  climate change academic literature and documents developed by federal  agencies, (2) met with agency officials from the Environmental Protection  Agency (EPA), the Department of Energy (DOE) including the Energy  Information Administration (EIA), the Department of Commerce including  the National Oceanic and Atmospheric Administration (NOAA), the United  States Department of Agriculture (USDA), the National Aeronautic and  Space Administration (NASA), and the Council of Economic Advisors  (CEA), and (3) obtained expert opinion on the economic effects of actions  to address climate change and the strengths and weaknesses of those  actions using a virtual panel on the Internet.
To structure and gather expert opinions from the panel, we employed a  modified version of the Delphi method. The method is based on a  structured process for collecting and distilling knowledge from a group of  experts by means of a series of questionnaires. Used to support informed  decision making, the Delphi method was first developed at the RAND  Corporation in the 1950s. One of the strengths of this approach is its  flexibility, and while first used in a live group discussion format, the  method is easily modified for various settings. The modified process we  employed utilized two Web-based questionnaires, and incorporated an  iterative and controlled feedback process to gather the experts’ opinions.  Specifically, experts’ responses to the first questionnaire were used to  create the questions for the second, allowing the experts to consider the  opinions and issues raised by other panelists when responding to the  second round of questions. Also, by using a Web-based process, we were  able to overcome some of the potential biases associated with group  discussions. These biasing effects include the potential dominance of  individuals and group pressure for conformity. Moreover, by creating a  virtual panel, we were able to include more experts than would have been  possible with a live panel. While the method has these strengths, there are  some potential limitations. For example, there is considerable reliance on  the active participation of the panelists, which can vary widely, and some  panelists may not complete the entire study. In addition, the results of the  iterative process are limited to the issues, topics, and responses generated  by those participating; thus some topics or viewpoints may not be  considered in the process. To mitigate the latter limitation, we added  critical questions to the second questionnaire that were not discussed in  the first round based on our review of the literature.
We contracted with the National Academy of Sciences (NAS) to select and  recruit a panel of experts with a range of in-depth experience assessing  the economic impacts of climate change policy. Participants were to (1)  have expertise in modeling and analyzing benefits, costs, and uncertainties  using integrated assessment methods; (2) have knowledge of policies for  mitigating climate change; (3) have knowledge of the economic trade-offs  associated with different policies for mitigating climate change; and (4) be  affiliated with U.S.-based institutions including academia, the federal  government, and other research-oriented entities. To select the experts,  we provided NAS with a preliminary list of potential panelists that we  identified in our review of the literature. Taking these names into account,  NAS developed a list of 37 who met our criteria. We reviewed and agreed  with the list of names, and NAS sent 25 individuals an electronic letter via  e-mail inviting them to participate in the study along with a description of  the project. Invitees were given the option of discussing the project further  with a project representative before deciding whether or not to  participate, which some chose to do. Of the 25 panelists NAS recruited to  participate, 21 agreed and were sent the first questionnaire. Nineteen  responded to the first questionnaire, and 18 responded to the second. All  of the experts who participated completed a form stating that they had no  conflicts of interest that would compromise their ability to participate in  the panel.
Prior to the posting of the questionnaires, we conducted a series of  pretests with internal and external experts, including two panel  participants. The goals of the pretests were to check that (1) the questions  were clear and unambiguous and (2) terminology was used correctly. We  made changes to the content and format of both questionnaires as  necessary during the pretesting processes. We also conducted usability  tests of both questionnaires for the Internet to ensure operability. For each  phase of the Delphi, we posted a questionnaire on the Internet. Panel  members were notified of the availability of the questionnaire with an  e-mail message. The e-mail message contained a unique user name and  password that allowed each respondent to log on and fill out a  questionnaire but did not allow respondents access to the questionnaires  of others.
In the first phase, we asked panelists to provide responses to three open- ended questions on the economics of actions to address climate change  developed from an extensive literature review. We asked the panelists to  (1) identify what actions, if any, the Congress should consider to address  climate change; (2) provide estimates of the benefits and costs of their  recommended actions; and (3) identify criteria that are appropriate for  evaluating the potential actions. In addition, we asked the panelists to  provide citations to support their responses.
After the first questionnaire was completed, we performed a content  analysis of the open-ended responses. Using the themes and topics that  were discussed, as well as the varying opinions of the panel, the second  questionnaire was constructed. For example, panelists were asked to rate  the importance of the various assumptions and uncertainties associated  with integrated assessment models that the experts collectively identified  in the first questionnaire. Using this approach, panelists could provide  their opinions on the topics that others had raised, and areas of agreement  and disagreement could be identified. In addition, this approach allowed  for the panelists to reevaluate their original responses in light of the  responses of the whole group. While these first round responses were the  primary source for developing the second questionnaire, literature cited in  support of their responses, as well as information gathered from GAO’s  literature review were also incorporated as necessary. The second phase  questionnaire included mostly closed-ended questions, with a limited  number of open-ended questions, and encapsulated panelists’ views on  preferred policy options, potential benefits and costs, key uncertainties,  and the strengths and weaknesses of different policy options.
Panel members had approximately 4 weeks between July and August of  2007 to complete their questionnaires in the first phase of the panel,  approximately 4 weeks in October and November of 2007 to complete  their questionnaires in the second phase of the panel, and approximately 4  weeks to provide comment (at their discretion) on a summary of their  second round responses in January of 2008. Selected questions and  aggregated responses from the second phase are presented in appendix III.  In addition, we asked several follow-up questions requesting that panelists  clarify their responses or elaborate on critical policy issues. While we  display only the quantitative, closed-ended responses, we also relied on  the responses to the qualitative, open-ended questions to inform our  findings in this report. GAO provided a summary of the findings of this  report and briefed representatives from the CEA, the Council on  Environmental Quality (CEQ), EPA, and DOE on the results of the panel  prior to issuing this report. The views expressed by the panel members do  not necessarily represent the views of GAO.
section_title: Appendix II: Selected Characteristics of Panelists’ Preferred Policy Options for Addressing Climate Change
paragraphs: Listed below are selected panelist policy recommendations for  implementing a market-based mechanism to place a price on greenhouse  gas emissions.
section_title: Appendix III: Selected Questions and Expert Responses
paragraphs: Listed below are questions and summary panelist responses supporting  figures 2 through 7 of this report. Panelists were asked to rate the  importance of various items related to policy approaches and rationales  for addressing climate change (Mean responses were calculated by  assigning the following values to the rated level of importance: 1 = not at  all, 2 = somewhat, 3 = moderately, 4 = quite, and 5 = extremely).
Question 1: In addition to establishing a price on anthropogenic sources of emissions using either a  tax or cap and trade system (or other regulatory approach), panelists identified the following list of  actions that Congress might also consider as part of a broader portfolio of actions. How important  is it that Congress consider each action to address climate change?
subsections: section_title: Question 2: In the first round of questions, panelists identified criteria that the Congress should consider in evaluating the various actions and policy options for addressing climate change. The list below summarizes these criteria. How important would you say that the following criteria are in evaluating the various policies for addressing climate change?
section_title: Question 3: Panelists identified several actions that Congress should consider in deciding how to distribute the revenue that would be generated from a federal program to establish a price on greenhouse gases (from an imposition of a tax or from an auction of permits). How important is it for Congress to distribute the generated revenue to each of these categories?
section_title: Question 4: Many panelists said that it is difficult to estimate the potential benefits associated with emissions mitigation partly because of uncertainty about the impact of climate change and the actions that could be used to address it. In some cases, the panelists identified general categories of benefits that could accrue from various policy options. These categories are below. How important are the following categories of potential benefits as a rationale for addressing climate change?
section_title: Question 5: Panelists identified several key assumptions that they made in estimating the benefits and costs using integrated assessment models. How important are the following assumptions in terms of affecting the estimated benefits and costs in integrated assessment models?
section_title: Question 6: Numerous respondents identified the importance of considering risk and uncertainty in identifying policy options for the Congress to consider. Below is a list of the key uncertainties that panelists identified. In general, how important are each of these uncertainties in terms of affecting the estimated benefits and costs in integrated assessment models?
section_title: Appendix IV: Panel of Experts
section_title: Appendix V: Bibliography of Selected Literature Reviewed by GAO
paragraphs: Bullets identify citations provided by panelists in their responses.
Aldy, Joseph E., Scott Barrett, and Robert N. Stavins. “Thirteen Plus One:  A Comparison of Global Climate Policy Architectures.” Climate Policy,  vol. 3 (2003): 373-397.
Ahmed, Rasha, and Kathleen Segerson. Emissions Control and the  Regulation of Product Markets: The Case of Automobiles. Working Paper,  Department of Economics, University of Connecticut: July 2007.
Antle, J. M., S. M. Capalbo, K. Paustian and M. K. Ali. “Estimating the  Economic Potential for Agricultural Soil Carbon Sequestration in the  Central United States Using an Aggregate Econometric-Process Simulation  Model,” Climatic Change, vol. 80 (2007): 145-171.
Ashenfelter, Orley, and Karl Storchmann. Using a Hedonic Model of Solar  Radiation to Assess the Economic Effect of Climate Change: The Case of  Mosel Valley Vineyards. Working Paper 12380, National Bureau of  Economic Research. Cambridge: July 2006.
Azar, Christian, and Kristian Lindgren. “Catastrophic Events and  Stochastic Cost-Benefit Analysis of Climate Change: Editorial.” Climatic  Change, vol. 56, (2003): 245-255.
Brown, P. G. “Toward an Economics of Stewardship: The Case of  Climate.” Ecological Economics, Vol. 26 (1998): 11-21.
Burtraw et al. “Ancillary Benefits of Reduced Air Pollution in the United  States from Moderate Greenhouse Gas Mitigation Policies in the  Electricity Sector.” Journal of Environmental Economics and  Management, 45 (2003): 650-73.
United States Climate Change Science Program. Scenarios of Greenhouse  Gas Emissions and Atmospheric Concentrations. 2007.
Cline, William R. The Economics of Global Warming. Washington, D.C.:  Institute for International Economics, 1992.
Congressional Budget Office. Evaluating the Role of Prices and R&D in  Reducing Carbon Dioxide Emissions. Pub. 2731. Washington, D.C.:  September 2006.
Congressional Budget Office. Trade-offs in Allocating Allowances for  Carbon Dioxide Emissions. Washington, D.C.: April 25, 2007.
Congressional Budget Office. Uncertainty in Analyzing Climate Change:  Policy Implications. Washington, D.C.: January 2005.
Congressional Research Service. Climate Change: Design Approaches for  a Greenhouse Gas Reduction Program. RL33799. Washington, D.C.:  Updated January 16, 2007.
Congressional Research Service. U.S. Global Climate Change Policy:  Evolving Views on Cost, Competitiveness, and Comprehensiveness.  RL30024. Washington, D.C.: Updated January 29, 2007.
DeCanio, Stephen J., Richard B. Howarth, Alan H. Sanstad, Stephen H.  Schneider, and Starley L. Thompson. New Directions in the Economics  and Integrated Assessment of Global Climate Change. Arlington, Va.: Pew  Center on Global Climate Change: October 2000.
Edmonds, Jae, John Clarke, James Dooley, Son H. Kim, and Steven J.  Smith, “Stabilization of Carbon Dioxide in a B2 world: Insights on the  Roles of Carbon Capture and Disposal, Hydrogen, and Transportation  Technologies.” Energy Economics, vol. 26, (July 2004): 517-537.
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section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Quindi Franco, Cindy Gilbert,  Michael Hix, Tim Guinane, Micah McMillan, and Kate Robertson made key  contributions to this report. JoAnne Berry, Nancy Crothers, Christine  Fishkin, Brandon Haller, Tom McCool, Susan Offutt, Benjamin Shouse,  Kim Raheb, and Ardith Spence also made important contributions to this  report.