Two opinions: yes and no
The Wall Street Journal
SEPTEMBER 21, 2009
There's little doubt: Cutting greenhouse gases will be costly.
But that leads to two big questions. First, how costly? And second, can
nations afford it?
As policy makers around the world take action to avoid a predicted
climate catastrophe, the debate is turning to the costs of reducing
carbon-dioxide emissions. Energy-efficiency measures are often pricey,
and alternative energy sources are more expensive than the fossil fuels
they replace. A steep price on carbon emissions will ripple through the
Does that mean a serious effort to tackle global warming is incompatible
with economic growth? Or can we make significant cuts in greenhouse-gas
emissions without causing serious damage to the economy?
We put the question to a pair of experts. Robert Stavins, a professor of
business and government at Harvard University and director of Harvard's
environmental economics program, says the answer to the second question
is yes: Making the necessary cuts need cause little more than a blip in
world-wide growth if smart policies are used.
Steven Hayward, a fellow at the American Enterprise Institute for Public
Policy Research, says no: Energy use—and the carbon dioxide it emits—is
so central to the world's economy that major cuts can't be made without
Of course, the answers can depend in large part on how "significant
cuts" and "serious damage" are defined. Many scientists, the European
Parliament and the Waxman-Markey climate legislation approved by the
U.S. House of Representatives have set a goal of cutting carbon
emissions about 80% by 2050, so that was picked as constituting
As the accompanying essays show, such a definition leaves plenty of room
— Michael Totty
YES: The Transition Can Be Gradual--and Affordable
By ROBERT N. STAVINS>
The world is facing a potential catastrophe from greenhouse-gas
emissions. But nations don't have to wreck their economies to avert
Critics argue that the legislation passed earlier this year by the
U.S. House of Representatives--to cut U.S. emissions 80% below 2005
levels by 2050--will mean big, disruptive changes to our
infrastructure and untold economic damage. But they make a couple of
basic errors. For one thing, they seem to think we'd have to replace
the entire infrastructure quickly, paying trillions of dollars to
shift to cleaner power. They also seem to assume that we have to
choose between much more expensive energy and no energy at all.
The move to greener power doesn't have to be completed immediately,
and it doesn't have to be painful. The right transition plan will
increase consumers' bills gradually and modestly, and allow companies
to make gradual, well-timed moves.
How would this work? One way is via a combination of national and
multinational cap-and-trade systems. Companies around the world would
be issued rights by their governments to produce carbon, which they
could buy and sell on an open market. If they wanted to produce more
carbon, they could buy another company's rights. If they produced less
carbon than they needed, they could sell their extra rights. What's
more, companies could earn more rights by creating appropriate
"offsets" that mitigated their carbon use, such as planting forests.
Nations could add carbon taxes to the mix.
The effect would be to send price signals through the market--making
use of less carbon-intensive fuels more cost-competitive, providing
incentives for energy efficiency and stimulating climate-friendly
technological change, such as methods of capturing and storing carbon.
True, in the short term changing the energy mix will come at some
cost, but this will hardly stop economic growth. As economies have
grown and matured, they have become more adept at squeezing more
economic activity out of each unit of energy they generate and
consume. Consider this: From 1990 to 2007, while world emissions rose
38%, world economic growth soared 75%--emissions per unit of economic
activity fell by more than 20%.
Critics argue we can't possibly increase efficiency enough to hit the
80% goal. In a very limited sense, that's true. Efficiency
improvements alone, like the ones that propelled us forward in the
past, won't get us where we need to go by 2050. But this plan doesn't
rely solely on boosting efficiency. It brings together a host of other
changes, such as moving toward greener power sources. What's more,
making gradual changes means we don't have to scrap still-productive
power plants, but rather begin to move new investment in the right
As for how much this will cost, the best economic analyses--including
studies from the U.S. Congressional Budget Office and the U.S. Energy
Information Administration--say such a policy in the U.S. would cost
considerably less than 1% of gross domestic product per year in the
long term, or up to $175 per household in 2020. (That's the cost of
one postage stamp per household per day.)
In the end, we would be delaying 2050's expected economic output by no
more than a few months. And bear in mind that previous environmental
actions, such as attacking smog-forming air pollution and cutting acid
rain, have consistently turned out to be much cheaper than predicted.
Critics are wary of raising energy prices, arguing that no nations
have grown wealthy with expensive power. But historically, it is the
scarcity and cost of energy that have prompted technological changes
as well as the use of new forms of power. What's more, critics
challenge the price estimates the experts have set out. They say that
the predictions depend on extensive--and unrealistic--cooperation
among nations. In particular, they say, developing nations won't sign
onto plans for curbing emissions, for fear of losing their economic
Indeed, we do need a sensible international arrangement in place to
achieve low costs, and the economic pain will be much greater if we
don't set up an international carbon market. But it can be done. Many
nations have already initiated such emissions-control policies. And
the world can be brought together in a meaningful, long-term
arrangement that is scientifically sound, economically rational and
Road to Cooperation
For instance, the U.S. and China have been involved in intense talks
about climate policy. If the two nations come together in a bilateral
agreement--a real possibility--they would have much more leverage to
persuade other major nations to join. From there, developing nations
could be brought on board by giving them targets that reduce emissions
without stifling growth. Advanced nations might agree to more-severe
emissions cuts and allow developing nations to make gradual cuts in
the early decades as they rise toward the world's average per-capita
emissions. With the right incentives, developing countries can and
will move onto less carbon-intensive growth paths.
The longer we put off serious action, the more aggressive our future
efforts will need to be, as greenhouse gases and carbon-spewing
capital assets continue to accumulate. Plants built today will
determine emissions for a generation. In the steel sector--where plant
lifetimes typically exceed 25 years--more than half of all plants in
the world are now less than 10 years old. The picture is similar in
the cement industry, as well as more broadly throughout the economy.
For every year of delay before moving to a sustainable emissions path,
the global cost of taking necessary actions increases by hundreds of
billions of dollars.
Critics argue that we can afford to wait because the world of tomorrow
will be wealthier and better able to absorb the costs. But acting
sooner, such as by adopting the emission caps proposed in the U.S.
House legislation, will lower the ultimate costs of achieving the
target, because there will be more time allowed for gradual
transition--which is what keeps costs down. Perhaps most important,
the costs of failing to take action--the damages of climate
change--would be substantially greater.
Getting serious about climate change won't be free, and it won't be
easy. But if state-of-the-science predictions about the consequences
of continued inaction are correct, the time has come for meaningful
and sensible action.
--Dr. Stavins is the Albert Pratt professor of business and government
at the Harvard Kennedy School, a research associate of the National
Bureau of Economic Research and a university fellow of Resources for
the Future. He can be reached at firstname.lastname@example.org.
Printed in The Wall Street Journal, page A17
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved
The Wall Street Journal
* SEPTEMBER 21, 2009
NO: Alternatives Are Simply Too Expensive
By STEVEN F. HAYWARD
The U.S. and Western Europe can point to a remarkable achievement over
the past 40 years: significant reductions in air pollution with only a
modest effect on our economic growth and prosperity. So, why can't we
expect to do the same with greenhouse-gas emissions?
Greenhouse gas isn't a traditional air-pollution problem. It is an
energy-use problem, and that makes a world of difference. Traditional
air pollution is an unwanted byproduct. Reducing it does not require
any constraint on fossil-fuel use. Indeed, over the past few decades,
we've doubled consumption of some fossil fuels while making huge cuts
Carbon dioxide, however, is the result of complete fuel combustion.
Apart from still-unproven technologies, there's no way to remove it
from the process. The only way to reduce emissions is to burn less
fuel, which means less energy output.
So, to meet the target the climate campaigners have set, the U.S.,
Europe and Japan will have to replace virtually their entire
fossil-fuel energy infrastructure. For the U.S., the 80% target means
reducing fossil-fuel greenhouse-gas emissions to a level the nation
last experienced in 1910. On a per-capita basis, we'd have to go back
to the level of about 1875.
It is not even clear the goal of replacing fossil fuels can be
accomplished at any cost, a point the International Energy Agency
raised in its most recent annual energy forecast: "Even leaving aside
any debate about the political feasibility of the 450 Policy Scenario,
it is uncertain whether the scale of the transformation envisaged is
even technically achievable, as the scenario assumes broad deployment
of technologies that have not yet been proven. The technology shift,
if achievable, would certainly be unprecedented in scale and speed of
The basic problem is that current and proposed alternatives--solar,
wind, biofuels, hydrogen, more nukes--are much more expensive than
fossil fuels. Credible estimates for implementing low or noncarbon
energy in the U.S. over the next generation start in the low trillions
of dollars. Reasonable people will argue how much this will pinch
economic growth, but no one can doubt that the sign will be negative.
The Master Resource
Why? Energy is not like other goods that can be substituted or done
without. It has rightly been called the master resource, because it is
fundamental to everything else in the economy. There are no examples
of a nation that grew wealthy on expensive energy.
True, we have a track record of success in this area. Over the past
few decades, the U.S. has become more carbon-efficient while boosting
its economic growth. But, for all our efforts, emissions keep going
up. Hitting the 80% target by 2050 would mean roughly tripling our
efficiency improvements and sustaining them for years to come--surely
an impossible feat.
Maybe there will be some energy-technology breakthroughs, but even if
so the cost to the economy will still be very large. Power plants,
refineries and transmission grids are long-lasting assets, so a rapid
switch to new technology will mean retiring assets before their useful
life is over and diverting trillions in capital from other sectors. It
is the equivalent of replacing your car, all of your household
appliances, and your roof to boot, before they are worn out. This will
obviously affect other consumption significantly.
Some climate campaigners argue for making gradual changes, using
methods like trading licenses to produce carbon. But those plans are
based on extremely rosy predictions about how much we can achieve and
how much they'll cost. The optimistic price estimates in the
Waxman-Markey bill, for instance, assume we'll set up an international
system to trade offsets. This free market, the thinking goes, will
help keep energy costs relatively steady and protect U.S. consumers
from much hardship.
But the obstacles to getting an international system in place are
huge--if not insurmountable. Already, Australia, New Zealand and
Russia are showing signs of backing out of the existing
emissions-cutting framework. The diplomatic house of cards can't
withstand further gusts of national self-interest.
Then there's problem of developing nations. If the world is going to
hit the 80% target, nations like China and India need to be held to
big emissions cuts. Why? Even if the U.S. and other industrialized
nations somehow achieved the 80% reduction target, it would have
virtually no climate benefit because of soaring emissions from
developing nations. As the International Energy Agency concluded, the
major nations in the Organization for Economic Cooperation and
Development "alone cannot put the world onto the path to 450-ppm
trajectory, even if they were to reduce their emissions to zero"
A Slim Chance
And the chances of getting emerging economies on board with an
ambitious emissions plan are slim to none. Yes, world-wide treaties
have been hammered out in the past to curb pollution. But, once again,
things are different where energy is concerned. Developing nations
need to bring huge new amounts of energy online over the next 40
years; is there any realistic chance they will adopt expensive energy
on a scale that even rich nations can't afford?
Proponents suggest that we give developing nations lower goals to
start with, to help them catch up to the rest of the world. But some
of the biggest developing nations--and biggest greenhouse-gas
emitters--have indicated they won't accept any kind of cap. For one,
India has been pretty straightforward for a long time: They'll think
about emissions limits when they are as wealthy as the industrialized
world is today. How many times do India and China have to say "no" to
emissions limits before we believe them?
Finally, the idea that we must act now to avoid bigger costs down the
road just doesn't hold water. Simply put, the world of tomorrow will
be considerably richer than today--and much better able to absorb the
costs of climate change. Yale University's William Nordhaus, one of
the top climate economists, thinks it is sound to allow about half or
more of the prospective damage from climate change to simply
occur--since the world 40 or 60 years from now will be in a much
better situation to handle the economic effects.
--Mr. Hayward is F.K. Weyerhaeuser fellow at the American Enterprise
Institute, and the author of the annual Index of Leading
Environmental Indicators. He can be reached at email@example.com.
Printed in The Wall Street Journal, page A17
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved
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Can Countries Cut Carbon Emission without Hurting Economic Growth?
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