Assignment: The Economics of Global Warming

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L9 Changes in GHG Emissions over time: Past, Present and Future

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* Draft version only. All copyright permissions not attained but used under Dalhousie Copyright Agreement, hence the document is not for widespread distribution. No copyright claim on public domain graphics or copyrighted items.

Topics List:

1.Introduction 2. Shifts of MAC 3. Shifts of the MD 4. Relate Shifts of MAC and MD to hypothetical Socially Efficient Price and Emissions Trajectories. 5. Predictions of BAU Emissions 6. Shifts MAC MD under Future Emissions Reduction Scenarios. 7. Summary and Conclusions

1-Introduction with recap:

Residual Byproducts

inputs services goods

Ex. banking, hair cuts, activist services, CO2 removal by trees

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- crude oil, trees for paper and wood, includes technologies

- transport - trees as an end product GHGs

Recall, we have switched our policy focus from GHG intensive goods, services and inputs to the GHG residual byproducts.

- it is important to note that regulations on residual byproducts (whether via carbon taxes, emissions standards, or cap and trade systems) will raise the price of GHGs. In the case of emissions standards (which are quotas on emissions), the effect on prices is indirect due to a reduction in the supply of GHGs which drive up their price to eliminate excess demand. - this will increase the price of GHG intensive goods, services or inputs relative to the price of less GHG intensive varieties due to increasing the producerʼs costs by putting a price on the GHG externalities. - note that the term “carbon tax” refers to a tax on carbon dioxide equivalents (CO2e) such that it includes taxes on all GHGs (including methane, nitrous oxides and F-gases).

$/ tonne CO2e

ESE

= 15

net GHG Emissions gT CO2e/year

$ MD = 50

M A

= 80 - 2E

EBAU

= 40

PSE= 50

In the previous two lectures, we developed the monetary MAC MD framework from the Pigouvian market framework.

Money Social Efficiency

Business as Usual(market)

$/ tonne CO2e

ESE

= 15

net GHG Emissions gT CO2e/year

$ MD = 50

M PS

EBAU

= 40

PSE= 50

The MAC is also the MPS of emissions with area A being the maximum total social surplus gained from increasing E from 0 to ESE =15 gT.

Monetary Social EfficiencyA

- Recall that the total private surplus of the 15 gigatonnes of GHG in CO2e (total consumer surplus + total producer surplus form the goods and services which produced the GHG residual byproducts) is equal to A + B while the total external costs to the 3rd parties is equal to area B. The difference (A) is the total social surplus of 15 gTs and this is maximized at Ese. If you have forgotten this, re-look at the MAC MD worksheet. - MAC = net marginal abatement costs (equivalent to the marginal private surplus (MPS) of the GHGs. - Recall that the interpretation of the MAC depends on whether we are decreasing emissions from BAU (net abatement costs), or increasing emissions (in which we get a marginal private surplus from each emission).

$/ tonne CO2e

ESE

= 15

net GHG Emissions gT CO2e/year

$ MD = 50

M A

EBAU

= 40

PSE= 50

From the perspective of starting at BAU, D is the gain in total social surplus gain due to abating emissions to the SE level corresponding to the deadweight loss of the unregulated market

Monetary Social EfficiencyA

B C

Question: What do the following areas represent? i) D+ C, ii) C, iii) D

D + C = total net benefits to third parties due to abatement from 40 to 15 gt (total external costs saved) C = net total abatement costs (TAC) to private parties (this is the total consumer + producer surplus, i.e. total private surplus that is given up by abating. D = Gain total social surplus = D = total external costs saved by third parties (D+C) - total abatement costs incurred by private parties (C) = D (its the deadweight loss of the market).

$/ tonne CO2e

ESE

= 15

net GHG Emissions gT CO2e/year

$ MD = 50

M A

EBAU

= 40

PSE= 50

We then looked at policies to achieve money social efficiency including emissions standards (quotas), cap and trade and floors on carbon sinks)...

Emissions Standards A

B C

- includes emissions standards and floors on natural sink areas. Recall, these are quantity mechanisms. Question: a) Which Canadian Province has this policy? b) What area on graph represents the private cost of compliance? c) How is the emissions quota enforced? Answers: a) Nova Scotia has an emissions standard with the focus on electricity. This is in addition to other policies including a renewable energy quota and floors on natural areas and feed in tariffs. b) The only compliance costs are the total abatement costs (TAC) equal to area C. c) Firms are monitored and punished if in non-compliance. For example, if Nova Scotia Power exceeds its emissions standard, it receives a fine of $500,000/ day by law. As long as NSP believes that the law will be enforced, it has an incentive to comply.

$/ tonne CO2e

ESE

= 15

net GHG Emissions gT CO2e/year

$ MD = 50

M A

EBAU

= 40

PSE= 50

... and price mechanisms including carbon taxes, subsidies to abate emissions and cap and trade.

Carbon tax = $50/ tonne A

B C

- recall that cap and trade is both a quantity mechanism and a price mechanism. Question: i) Find the total tax collected under the policy (also equals permit rent under cap and trade policy) ii) Find the total abatement costs (TAC) of the private parties and iii) find the total private cost of compliance = TAC + tax paid. vi) Explain why private parties are expected to abate to 15 gT under the tax. Answer: i) B is the total tax collected = 15 billion tonnes/ year * $50/tonne = $750 billion/ year ii) C is the net total abatement costs (TAC) of the private parties from EBAU to ESE is area C (the total private surplus given up) = (40 - 15) * 50/2 = $ 625 billion. iii) B + C = Total private costs of compliance = TAC + Total tax = $1375 billion/year. - Private parties abate all tonnes above 15 because they will save more tax than abatement costs at the margin thereby gaining either a producer or consumer marginal surplus. For example, for E > 15, the tax saved by abating an additional unit is $50/ unit, while it costs the height of the blue MAC to abate the unit. Since the cost of abating the unit is less than the tax saved, the private surplus will increase by abating. This holds until E = 15 gT per year after which, abating an additional unit will cost more than any tax saved and so it wonʼt pay to abate.

We investigated a one period framework (of short duration, like a year) in which the MAC and MD curves did not shift about.

In reality, the MAC & MD curves shift about over longer periods of time and hence the monetary socially efficient carbon prices and output levels change over time.

$/ tonne CO2e

MAC 2010

EBAU

We can think of the MAC as the demand for emissions (since its equal to the marginal private surplus of emissions). It is the maximum that the private parties will collectively be willing to pay (WTP) to emit an additional tonne of emissions at a given level of Q.

Demand

net GHG Emissions Gt CO2e/year

- i.e., the private parties (consumers & producers) are collectively WTP the amount of consumer plus producer surplus they will gain from polluting.

For example, if Q = 0, producers and consumers are jointly WTP $80/unit. If Q = 20 Gt, producers and consumers are jointly WTP $40 to pollute an additional tonne or alternatively would be WTA compensation of $40 to reduce emissions by one tonne.

$/ tonne CO2e

ESE Emissions

2010 0

$ MD2010 = 50 = min WTA

0 EBAU

PSE= 50

We can think of the MD as the social supply for emissions (since it is the minimum that the damaged “third parties” would be willing to accept (WTA) to be compensated for the damages.

Supply

* This will only be the supply curve if the third parties have the right to charge the polluters to pollute, as would occur under perfect regulation. Under no regulation, polluters donʼt have to pay and so the supply is just a horizontal line at 0. - The supply curve for emissions is expected to slope upward over the longer term as later emissions wreak more damages than earlier ones (see later slides). Hence, over the long term (say a century), the MD curve will look like a regular supply curve. - It is also the maximum marginal WTP of third parties for a clean environment (if they do not have the right to a clean environment).

As the MACs and MDs shift about, the socially efficient carbon prices and net emissions levels will change over time.

- The above graph is the output of William Nordhausʼs climate economy model. The objective of the models is to choose the emissions trajectory to maximize the happiness of the greatest number of people over time. This occurs when MACs and MDs (measured in hypothetical utility units, not money) are equal. The MD shifts up over time which is why the carbon price is rising over time. This will become clearer in this and the succeeding lecture. - The reason for two different trajectories is that Nordhaus changed parameters for different model runs. The trajectory of higher carbon prices puts more weight on future happiness (as in Sternʼs model).

Note that prices are in $/ tonne of carbon and hence need to be adjusted to get them into CO2e. Since carbon weighs 12 atomic mass units while CO2 weighs (12 + 2*16) = 44 amu, a given mass of carbon will have a higher price than a given mass of carbon dioxide. - Ex. Pcarbon = $100/ tonne PCO2e= ( $100/ tonne ) * 12/ 44 = $27.2/ tonne. - If we changed the y-axis into carbon prices in CO2e, we will need to divide by 3.67 (i.e. 44/12) Source: William Nordhaus, “A Question of Balance” (pg. 88). * Note that these are NOT Sternʼs estimates but are Nordhausʼs model run with Nordhausʼs interpretation of Sternʼs assumptions.

It will be necessary to understand factors that cause the MD and MACs to shift in order to understand the emissions reduction trajectories and carbon prices recommended by economists like Nicholas Stern and William Nordhaus.

In this lecture, we first investigate reasons for shifts in the MAC and use the MAC MD framework to illustrate how the money socially efficient price and quantity of emissions is affected. Next, we repeat the exercise for the MD framework.

- For descriptions and graphs of emissions scenarios for fossil fuels, see pg. 86 - 87 DP.

After this, we use the model MAC MD to illustrate how the socially efficient level of GHG emissions and carbon price is predicted to change over time conditional on feasible shifts in MACs and MDs.

Next, we revisit the Kaya Equation and discuss how it relates to emissions levels and their trajectories.

We then discuss how the model predicts past shifts.

As future shifts in the MACs and MDs will depend upon what events happen, we then investigate scientist’s predictions of possible emissions trajectories based upon a series of feasible emissions scenarios.

- For descriptions and graphs of emissions scenarios for fossil fuels, see pg. 86 - 87 DP.

2-Shifts of MACs

MACs and MD curves are not static. They shift about like regular demand and supply curves. In this section, we examine some shifts.

The shifts of the MACs and MDs will be used to determine socially efficient carbon emissions reduction trajectories and carbon prices.

For simplicity, we will shift one curve at a time starting with the MAC.

Shifts MAC: Supply Side: Demand Side:

1) Adoption of low GHG technologies

2) Increased efficiency of GHGs (get more value from each GHG)

3)Population Change

4) Behavioural Attitudes

2.1) Adopt Low GHG Technologies

Consider a large electricity generating company (Acme Co.) which currently generates 40 Megatonnes (Mt) of power from coal.

- It is considering whether to purchase low GHG technology such as wind turbines.

- 40 Mt is equal to 40 million tonnes (40,000,000 tonnes). - For simplicity, we will ignore consumer surplus here and use the producer MAC, the area under which represents the producer surplus. - We will assume that the MD of a CO2e is $50/tonne in this period (this is a bit higher than Nordhausʼs estimate for the first decade of the 21st century but is lower than Sternʼs estimate).

$/ tonne

ESE 0

$ MD = 50

M A C O

EBAU net GHG Emissions (Mt CO2e/year)

B C

If Acme Co purchases the wind turbines, will the MAC shift? Will the MD shift? If so, how?

Think about before looking at next slide. - What will happen to the BAU level of emissions if less coal is being combusted due to the wind turbines?

$/ tonne

ESE (old)

$ MD = 50

M A

C O ld

EBAU (new)

The MAC shifts inward and down as there are fewer GHGs under BAU and the value of each will be equal to or lower than its previous value.

M A

C N

EBAU (old)

ESE (new)

net GHG Emissions (Mt CO2e/year)

-The BAU emissions level falls because less coal is being combusted. - What happens to the y-intercept is not so obvious as marginal costs of wind will be a bit higher decreasing the producer surplus for each unit of electricity. Also, the amount of GHGs per unit of electricity will be lower. Here I have assumed the y-intercept has fallen. - Notice that the socially efficient level of emissions has fallen due to the firm getting less private surplus from each emission.

$/ tonne

ESE (old)

$ MD = 50

M A C O

EBAU (new)

We can use the framework to investigate the monetary incentives private parties have to adopt or invent low GHG technology under policies like a carbon tax.

M A

C N

EBAU (old)

ESE (new)

C F

net GHG Emissions (Mt CO2e/year)

carbon tax = $50/tonne

-We will use areas under the graph to compare the firmʼs total private cost of compliance (TCCPrivate) before it adopts the new technology with after it adopts the new technology. This will tell us how much the firm expects to save by adopting the new technology. - The TCCPrivate includes all costs to the firm due to the policy. Under a carbon tax, there will be two costs. These are: 1) The total abatement costs. 2) The total tax paid. Before moving to the next slide, use the letters to identify the TCCPrivate before the MAC shifts (i.e. before the firm purchases the wind turbines from the pollution abatement industry). - For simplicity (albeit unrealistically, we will assume that the world only lasts for one year and then ends.

$/ tonne

ESE (old)

$ MD = 50

M A C O

EBAU (new)

Old total private cost compliance = total tax + TAC = (C + D + F) + (G + H)

EBAU (old)

C F

carbon tax = $50/tonne

net GHG Emissions (Mt CO2e/year)

- Now look back at previous slide and identify the TCCPrivate after the firm purchases the wind turbines. Check your answer on the next slide.

$/ tonne

$ MD = 50

M A C O

New total private cost compliance = total tax + TAC = (C) + (F + G)

C F

carbon tax = $50/tonne

EBAU (new)

M A

C N

ESE (new)

net GHG Emissions (Mt CO2e/year)

- We can see that the TCCPrivate fell such that the firm can save money by adopting the wind turbines. Before moving to the next slide, identify the total savings in TCCPrivate (using letters to indicate the area).

$/ tonne

ESE (old)

$ MD = 50

M A C O

EBAU (new)

Savings in total private cost of compliance by inventing and or adopting low GHG technology is [(C + D + F) + (G + H)]- [(C) + (F + G)] = D + H.

M A

C N

EBAU (old)

ESE (new)

C F

net GHG Emissions (Mt CO2e/year)

- Now suppose that we have calculated the blue area of TCCPrivate savings to be area D+H and suppose this area is $700 million. Suppose the wind turbines cost $100 million. Should the firm purchase the wind turbines. Answer: Yes because the savings in TCCPrivate is less than the cost of the wind turbines.

- For simplicity, we assumed that the world only lasted for one year. In reality, the wind turbines have a life time of about 20 years. Hence, there would be a benefit of D+H for 20 years with a cost of adopting the wind turbines in year 1 and some maintenance and operating costs in the subsequent years. When costs are measured in money and fall in different time periods, they need to be adjusted via a process called “discounting”. This takes into account inflation and the opportunity cost of tying up money in the turbines when it could have been invested elsewhere. We will be considering this in subsequent lectures. Hence, wind turbines would be worthwhile even if their costs were considerably higher than D+H.

- Later, we will show that the incentive to adopt the turbines is higher under a carbon tax than an emissions standard and identical to that of a cap and trade system. The standard does however leave the firm with more money to finance the wind turbine purchase unless the government returns some tax as a lump sum payment or reduces corporate taxes.

As low GHG energy alternatives are adopted, their costs are expected to fall due to factors such as scale economies, increased competition, and learning by doing.

Cumulative Installation

N ew

T echnology

marg. cost per

kWh Established Technology

“ Historical experience of both fossil-fuel and low-carbon technologies shows that as scale increases, costs tend to fall. Economists have fitted ‘learning curves’ to costs data to estimate the size of this effect. An illustrative curve is shown above for a new electricity-generation technology; the technology is initially much more expensive than the established alternative, but as its scale increases, the costs fall, and beyond Point A it becomes cheaper. Work by the International Energy Agency and others shows that such relationships hold for a range of different energy technologies. A number of factors explain this, including the effects of learning and economies of scale. But the relationship is more complex than the figure suggests. Step-change improvements in a technology might accelerate progress, while constraints such as the availability of land or materials could result in increasing marginal costs.” Stern Review Summary for Policy Makers, pg. xx. - The figure is adapted from figure 5, on pg. xx. Link here: http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/media/4/3/Executive_Summary.pdf

As renewables are intermittent, there is a problem of storage. Problem with renewables at 30% of grid. Demand batteries rises ==> price up ==> profits to inventing better batteries up ==> Supply batteries up ==> Price batteries down when firms invent better batteries and enter market.

$/ battery

D2 D1 S1 S2

Q1 Q2

1- Start out in the fossil fuel energy world 2- Add renewables as is occurring in Nova Scotia to about 30% of electricity grid. Demand for batteries shifts up and out creating excess demand for batteries. The price of batteries rises. Firmʼs profits go up. Firms now have incentives to invent better batteries. 3. New firms enter the battery market with their new inventions and the supply of batteries rises (supply curve moves from S1 to S2). There is now excess supply and the price falls. ========= Batteries not limited to chemical but also include other types like water gravity batteries which work as follows. When it is windy, water is pumped uphill into a reservoir. When the wind stops blowing, water is let out of the reservoir and allowed to flow over hydro turbines to generate electricity! Water batteries are in action in Wales and in the Fiordʼs or Norway. Other types of batteries include hydrogen batteries in which electricity is used to split water to make hydrogen which is stored. The hydrogen is then used to power a fuel cell. Unfortunately, the technology is expensive. Also see high density direct current supergrids which pool electricity from many sources helping to reduce the intermittency of the renewable energy. - Ex. underwater air compression balloon battery http://www.treehugger.com/renewable-energy/how-to-store-wind-power-pump-it-into-a-big- underwater-balloon.html

$/ spun wool

D2 D1 S1 S2

Q1 Q2

A similar thing happened in the 18th century with the flying shuttle which sped up weaving so there was an excess demand for spun wool leading to the spinoff technology, the spinning jenny which sped up spinning.

1. prior to invention of flying shuttle, demand at D1. 2. Early C18 ==> flying shuttle invented by John Kay a watchmaker increases rate of weaving wool into cloth. demand for spun wool shifts up to D2==> price spun wool up ==> profitable to spin wool providing incentives to invent wool spinning machines. 3. Later in the century, James Hargreaves invents the spinning Jenny which increases the rate of spinning wool. The supply of spun wool rises (shift of supply from S1 to S2) and the price falls.

Flying shuttle photo: http://en.wikipedia.org/wiki/Flying_shuttle Spinning Jenny: http://en.wikipedia.org/wiki/Spinning_jenny

- The adoption of low GHG technologies (ex. solar, geothermal, tidal, wind and nuclear) is needed both to slow and halt global warming. As low GHG energy sources are increasingly adopted, spinoffs like better batteries are predicted to develop and costs to fall.

- As such, policies which merely aim to use fossil fuels more efficiently are insufficient and such a focus risks getting us stuck into a nasty trap in the future where it becomes expensive to move to carbon neutrality because we did not get started early enough.

- Policies like renewable energy quotas (as in Nova Scotia) help us to develop carbon neutral technologies today putting us on a trajectory towards a carbon neutral future. Nuclear energy may help us transition although it too is a finite resource and must be carefully regulated.

- carbon neutrality refers to a situation in which human net GHG emissions are 0, our ultimate goal. - Note that even if we did not have a global warming problem, as fossil fuels are a finite resource, we would eventually run out and would hence need to develop alternative energy sources. Also, fossil fuels have other valuable uses such as plastics and we are currently squandering a great deal on many unnecessary items like the plastic laundry scoops discussed earlier as a no brainer example of a product which could be banned with no cost benefit analysis required. - There is estimated to be about 900 years of coal left if we were to combust it at the current rate. Doing so would be foolish and dangerous unless the CO2 can be captured (unproven on large scale).

Note: In 2011, the UN IPCC released a Special Report on Renewable Energies available here: http://srren.ipcc-wg3.de/

2.2) More Efficient Use of Fossil Fuels

Stanley Jevons (1835-1882)

- Here, following on from the last slide, we will investigate why, although on their own improvements of energy efficiency are a good thing, exclusive dependence on energy efficiency in the short run can get us stuck in a situation in which it is efficient to increase GHG emissions. - The main message is that we need to be using policies to provide incentives to adopt alternative energy sources to the fossil fuels even if they are expensive in the short run. For example, the feed in tariff for some classes of solar energy in Ontario is about 80 cents per kWh, far more expensive than wind or hydro. However, it is reasonable for the government to encourage this technology in hopes that this will lead to innovations which greatly reduce the cost of solar.

- make steam engines more efficient. - cogeneration plant with heat from gas or coal turbines being used to power a second turbine (ex. Tuft’s Cove plant). - heat from turbines can also be used to heat buildings. - insulate buildings. - more efficient public transit (higher use means used closer to capacity with fewer GHGs per passenger mile). - increased fuel efficiency in transport vehicles. - sustainable forestry. - not putting bananas and other fruit in bags--they already have skins! - looking after goods, building them to last and repairing them when broken.

- One of the cheapest and important ways to reduce emissions is to use fossil fuels more efficiently so that we get more private surplus from each emission. Examples include:

Footnote: (this is a digression) - Currently, we tolerate planned obsolescence (goods which are purposefully designed to break) so people will buy more goods. How remarkably inefficient!!! For example, phones break within a year or so whereas my parents have phones they purchased in the 1970s which they still use! - Perceived obsolescence is similar but firms market goods as being out of style before they wear out so people replace them. Ugghh-- my shoes have flat toes,help I must go buy some pointy ones! - Why do we tolerate this? Likely because it creates jobs which distributes income which means people demand goods which creates jobs and so on (the consumption multiplier). Remarkably, given the industrial technology, we could all work less--however, then how would we pay the people who are not working or how would we agree to share the work? Is capitalism failing? When machines are cheaper than labour, there will be no market, capitalism would fail. Karl Marx predicted this--is this happening? Fascinated by this question which I was introduced to in a book called “21st Century Capitalism” by Robert Heilbroner, in the mid 1990s, I decided to return to school to study economics. Interestingly, this question was not addressed in a single class that I took.

$/ tonne

ESE 0

$ MD = 50

MAC Old

EBAU net GHG Emissions gT CO2e/year

If Acme Co purchases invests in increased efficiency of its coal or gas fired generators, will the MAC shift? Will the MD shift? If so, how?

Think about this before moving on to the next slide.

Hints: 1) What will happen to BAU emissions if you get more energy from each GHG produced? 2) If each GHG produces more energy, what has happened to the private surplus derived from each GHG residual byproduct?

$/tonne

The increase in efficiency in use of GHGs shifts the EBAU left (you need less emissions to make as much as before) but each emission provides more private surplus (twists up).

M A

C N

e w

MAC Old

EBAU

160

EBAU

net GHG Emissions gT CO2e/year

Note: The MD will not shift because the relationship between damages and emissions has not changed. We just move along the MD in response to emissions levels that year. However, energy efficiency affects the cumulative emissions and so can change the rate at which the MD shifts in later periods (to be explained under MD shifts).

- Here imagine you get two times as much surplus from each GHG. This means that to generate a given amount of private surplus, you produce half as many emissions (here 20 gT). However, each emission now gives twice as much money value as before so the MAC curve is twice as high. So, the MAC twists inward and upward. - I have oversimplified a bit--for example, the more energy efficient turbines may have a higher marginal private cost which should reduce the private surplus of emissions offsetting the above effect somewhat.

$/tonne

ESE

$ MD = E

Case 1: If the MD is low, the SE level of emissions falls.

M A

C N

e w

MAC Old

EBAU

160

ESE

net GHG Emissions gT CO2e/year

- For example, if you have a more fuel efficient car and you now need to use half as much gasoline and are travelling a similar distance as before, you will use less gasoline and therefore create fewer emissions for each unit of consumer surplus generated.

$/tonne

ESE

80 $ MD

M A

C N

e w

MAC Old

EBAU

160 ESE

Case 2: If the MD is high, the SE level of emissions rises. This appears to be a paradox!

net GHG Emissions gT CO2e/year

- The Key thing to note here is that that the SE emissions level are in the region of the x-axis for which the new MAC (with the increased efficiency) gives a higher marginal private surplus than the old MAC. This means that we get more value from each emission! This is the Jevonʼs paradox.

Stanley Jevons: 1835 - 1882

Jevons’ Paradox

- The above paradox was to my knowledge first investigated by Stanley Jevons, an economist whose lifetime over-lapped with a massive increase in the use of coal to provide energy.

Source Stanley Jevons Picture and interesting profile of available at http://homepage.newschool.edu/~het/profiles/jevons.htm

Imagine it is the 19th Century England... the age of coal is in full swing. People are worried that coal will run out.

- Through out the Late Middle Ages, as England became deforested coal was increasingly used to heat homes although considered inferior to trees (source Adam Smith--1776,WON Book 1). - By the beginning of the 18th century, coal-fired steam engines were being used to pump coal out of mines. - By the end of the 18th century, the steam engine was light enough to be used for transport enabling it to be used to power trains and steam boats. This greatly increased the size of markets enabling economies of scale, importantly due to specialization as discussed by Adam Smith. - Engineers worked (including James Watt) worked on improving the steam engine such that by the second half of the 19th century, it replaced the water wheel as the mechanical force in factories. Innovations in making steel (the Bessemer converter) enabled machines to withstand the powerful force of the coal driven steam engine. The Second or Late Industrial Revolution was now in full swing.

The question of the day is: Will making the steam engine more efficient help to conserve coal ?

Source Steam Engine Picture: http://en.wikipedia.org/wiki/ Steam_engine (this is animated at the website)

Some people argued that more efficient steam engines will help to conserve coal so it won’t run out as fast.

To contrast, Jevons argued that the coal may run out even faster due to more efficient steam engines.

Why? The price of energy will fall and this will increase its demand making coal run out even faster.

Innovations in steam engine

less coal inputs needed to make each good

demand coal

- Price of goods using coal input

Demand Goods

Jevon’s Paradox Case + > -

- This systems diagram illustrates Jevonʼs argument.. - Jevons mathematically illustrated the possibility using the general equilibrium economics models (these include multiple goods and contain models of consumers who choose goods to maximize their happiness (utility) given their budgets and firms which choose output levels given prices of the goods they sell and the costs of factor inputs like labour and capital. Our models, to contrast, are called “partial equilibrium” only containing one good.

Corporate Average Fuel Efficiency Standards Cars: 1978 = 13.1 Litres per 100 km 1986 = 9 Litres per 100 km 2011 = 7.8 Litres/100km

Light Trucks: 1979 = 13.8 L/ 100 km 1990 = 11.8 L/ 100 km 2010 = 10 L/100 km

2020 target (all vehicles on road) = 6.72 L/100 km.

- One way to reduce GHG and other emissions (like SO2) from transport are fuel efficiency standards, an example of a “performance standard”. - Canadaʼs standards are called CAFC and just follow the US policy since automobile production is completely integrated.

Cars become more fuel efficient

less gasoline needed to drive a mile

demand gasoline

- Price driving a km

Demand for driving

Jevon’s Paradox Case + > -

- Fuel efficiency standards insufficient/ gasoline taxes also needed

- In the case of cars, it is easy to appreciate Jevonʼs paradox. If you have a more fuel efficient car, it now costs less to drive a mile, i.e. the price of driving a mile falls. When the price of goods and services fall, demand often goes up. It is possible that the increased demand for driving offsets the fact that you need less gasoline to drive a mile resulting in an increase in the demand for gasoline. - note that this has effects on the urban structure because it becomes relatively cheap to live in the suburbs in comparison to the downtown core. Many North American cities are spread out with urban sprawl.

http://en.wikipedia.org/wiki/Gas_pump#Nozzles

Corporate Average Fuel Efficiency Standards = Policy Failure

- different standards on cars vs “light trucks” (to help business) - Auto companies respond by marketing the SUV and Minivan such that gasoline use rises in US and Canada

- today, due to environmental concerns and the high price of gasoline, SUVs have become less fashionable...indeed after the prices rose in the summer of 2008, the price of a second hand SUV dropped massively--people wanted to get rid of them but there were no buyers. - interestingly, SUV sized cars are being marketed today (see the right picture). This may be a sort of greenwash as the car seems greener than the SUV. Cars marketed as hatchbacks are also much bigger than 1980s and 1990s versions. They are however, more energy efficient.

Chicken Tariff - In the 1960s, Europe banned US frozen chickens - US responded with tariff on light trucks - US light truck industry protected relative to US car industry also encourages US Auto to market and advertise SUVs.

- Volkswagon minivans have long been popular. - Although some people have jeeps in the 1980s, use is not widespread. SUVs and minivans became popular in the 1990s due to massive advertising including product placements in TV shows. Environmentalists were astounded--cars got bigger even though scientists were warning that greenhouse gases needed to be reduced rapidly. - Source: Linda McQuaig “ Its the Crude Dude: War, Big Oil, and the Fight for the Planet.” This book gives a history of the oil industry- highly recommended. http://www.amazon.ca/Its-Crude-Dude-Fight-Planet/dp/0385660103

Canada’s GHG Emissions

- GHG intensity targets have been the main policies in the USA and Canada--They don’t work!

Can. Kyoto Target = 556

a) b) c)

Can. Copenhagen Target = 607

- Canada and US Policies have emphasized increasing energy efficiency with GHG intensity targets meaning that the objective is to make each unit of GDP with fewer GHGS such that the GHG intensity of the GDP falls. While this is fine as a goal, as the Jevonʼs paradox shows, there is no guarantee that we hit our targets; Firm GHG targets are needed--GHG intensity targets are not enough. - Notice that our national Copenhagen target is laxer than the Kyoto Target. - green dashed line is the Kyoto target date for which commitments need to be met. a) George W. Bush Junior (US President 2000 - 2008, Texas Oil Man, son of George Bush Senior, US President and oil company owner). b) Dick Cheney (US Vice President 2000 to 2008). Was CEO of Halliburton Corp., an oil services firm before becoming VP. c) Stephen Harper (Current Canadian Prime Minister). Photo Sources: wikipedia Note: Although it looks like we are making progress, and this is happening in some provinces, the downturn in GHG emissions in 2009 is due to the collapse of the US economy with the USA being Canadaʼs biggest trading partner. Tar (oil) sands expansion will make it very difficult to make our Copenhagen target. Meanwhile, countries are being urged to set tighter targets or the 2015 Doha target date. Regulatory Capture: refers to a situation in which corporations use techniques like election finance to prevent themselves from being regulated.

More real GDP per GHG

less GHGs

demand GHGs

- Shadow price GHG falls

Consume more stuff

Jevon’s Paradox Case + > -

- Greenhouse Gas intensity standards are insufficient to solve our problem--tight caps are also needed.

GDP

- note that this result holds in a regulated market.

$ MCPrivate

$ MBPrivate

$/kWh

What happens to $SE price when half as much GHGs are used/ kWh of electricity?

$ MCExternal(old)

$ MCSocial

PSE(old)

QSE Quantity Electricity

To understand Jevonʼs Paradox consider the underlying Pigou framework for electricity. How will an increase in energy efficiency affect this framework?

$ MCPrivate

$ MBPrivate

$ MCExternal(old)

$ MCSocial

PSE(old)

QSE

$ MCExternal(new)

As there are half as many GHGs per kWh, the marginal external cost is half as much and hence shifts downward by 1/2.

$/kWh

Quantity Electricity

(kWh)

What happens to the marginal social cost curve, $SE price and quantities of electricity?

Note: MCPrivate may rise if the low GHG technology is privately more expensive. This is ignored for graphical simplicity.

$ MCPrivate

$ MBPrivate

The Social supply curve (MCSocial) shifts down due to teh smaller externality and the $SE price falls & quantity rises.

$ MCExternal(old)

$ M

C So

ci al (o

ld )

PSE(old)

QSE

$ MCExternal(new)

$ M

C So

ci al (n

ew )

$/kWh

Quantity Electricity

(kWh)

$ MCPrivate

$ MBPrivate

$ MCExternal(old)

$ M

C So

ci al (o

ld )

PSE

QSE

$ MCExternal(new)

$ M

C So

ci al (n

ew )

The Social supply curve (MCSocial) shifts down due to the smaller externality and the $SE price falls & quantity rises.

$/kWh

Quantity Electricity

(kWh)

- It is now efficient to produce more electricity. This in itself creates more GHGs however, there are now half as many GHGs per unit of electricity working in the opposite direction. - We can see, however, that if the first effect dominates, the quantity of GHGs would increase for an increase in energy efficiency and this is our Jevonʼs paradox.

- We can see here that although increasing energy efficiency and more generally the efficiency of use of GHGs is an important part of the solution, efficiency cannot be relied on as our sole policy. This is because it does not guarantee hitting the cap on GHGs and there are limits to efficiency.

- Energy efficiency only takes us part of our way to our target and there is a risk that we get trapped in a situation in which we focus on energy efficiency at the exclusion of developing carbon neutral technologies making it very expensive to switch out of GHGs which will ultimately be required to move to carbon neutrality. Jevon’s paradox provides us with a warning.

Chapter 17 of Stern Review provides some examples of achievements in energy efficiency (see box 17.2) http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/media/0/F/Chapter_17_Beyond_Carbon_Markets_and_Technology.pdf

“ China first introduced appliance standards in 1989 and expanded their application rapidly during the 1990’s to include, for example: refrigerators, fluorescent ballasts and lamps, and room air-conditioners. By 2010, energy savings are estimated to reach 33.5 TWh, or about 9% of China's residential electricity. This is equivalent to a CO2 emission reduction of 11.3Mt C02. A more recent study highlighted the potential for significant energy savings in the longer term from more stringent performance standards on three major residential end uses: household refrigeration, air- conditioning, and water heating.” (from box 17.2) * Stern notes that design standards (although inflexible) can help to create scale economies for new technologies. He also discusses the importance of design and land-use planning regulations to facilitate “a less energy intensive society, while balancing a range of wider economic and social objectives.

2012

1988

2-iii) MAC shifts due to Population Change

Recall that GHGs = population * GHGs per capita.

$/ tonne

ESE 0

$ MD = 50

M A C O

EBAU net GHG Emissions gT CO2e/year

B C

Lets suppose the world population increases from 7 billion to 9 billion people by 2050 (28.6%). How do you think the MAC and or MD will shift?

My BAU emissions levels are not realistic here. 40 Gt is the 2000 level and we are already at 53 gT/year.

- For simplicity, we will hold everything else equal (“ceteris paribus”) which is not very realistic and just assume that 28.6% more emissions are produced under BAU with the Oth emission for the new population giving a marginal private surplus of $80/ tonne and the last giving a marginal value of $30 per tonne. Another way to put this is that on average, we assumed each consumer and producer gets the same private surplus from emissions today as in 2050. Question: Explain why the ceteris paribus assumption may be very unrealistic here. Answer: One answer is limits to growth (land is getting used up and oil and food will be more expensive). Another reason is that the private surplus of emissions need not be shared equally. Changes in behavioural attitudes towards post materialistic attitudes (see next section) may occur so each person would emit fewer GHGs helping to offset the effect of the population growth. - Also note that with a higher population, at any given point in the future, cumulative emissions should be higher such that marginal damages would be expected to be higher. We will just focus on the MAC shift here.

$/ tonne

ESE (2012)

= 18

$ MD = 50

MAC 2050

EBAU (2012)

=40

net GHG Emissions gT CO2e/ year

All else equal, BAU emissions rise and socially efficient emissions rise.

M A

C 2012

EBAU (2050)

= 51.4

ESE (2050)

= 19.2

- For simplicity, we will hold everything else equal which is not very realistic and just assume that 30% more emissions are produced under BAU with the Oth emission for the new population giving a marginal private surplus of $80/ tonne and the last giving a marginal value of $30 per tonne. Question (Extra for interested students): What is the new MAC? Answer: y-intercept = $80/tonne. slope = b = rise / run = - (80 $/tonne)/51.4 billion tonnes per year.= - 1.56 MAC (E2050) = 80 - 1.56 E2050 Find the SE emissions level in 2050 assuming no shift of MD. Set MAC (E2050) = MD 80 - 1.56 E2050 = 50 E2050 = 19.2 gT/ year (increase)

2-iv) MAC shifts due to changes in behavioural attitudes.

- see ch. 13 of Sternʼs review.

In the 20th century, the Early Industrialized countries have enjoyed material standards of living far in excess of any prior period.

D em

and

Sup ply

- Madonna sings a song called “material girl” source wikipedia - Ferris Buellerʼs Day Off (1986). Funny part with a “very boring economics teacher”.

Signs that the environment was being harmed caused increase in post materialistic attitudes

- Post materialistic attitudes refers to concerns about the environment such that people attempt to decrease their impacts by reducing the quantity of environmentally damaging consumption goods and the nature of the goods consumed. For example, environmentalists use public transit, bring cloth bags to stores and refill their containers making efforts to buy less packaged goods and reduce meat consumption. - Although environmentalism dates back much earlier than the 1960s (ex. Romantic movements of the 19th century), the modern environmental movement is often dated with the publication of Rachel Carsonʼs 1962 book, Silent Spring, a study of pesticides. The book opens with a hypothetical description of a spring in which a dust of pesticides has killed all birds such that there is no song--the spring is silent. Her work roused the public attentions leading to environmental acts like bans on pesticides like DDT which weakens bird eggs among other things such as the passing of clean air and water acts. Unfortunately, widespread use of pesticides still harms nature and also human health.

Look a mother nature on the run

in the 1970s

Can you tell a green field from a

cold steel rail

The powerlines have floaters so the airplanes won’t get

snagged.

Musicians and writers helped to spread the message of post materialism.

Hey farmer farmer, put away your DDT. I don’t care about

the spots on my apples, leave me the birds and the bees--please

Exercise: Think of environmental lyrics in more recent songs. - Neil Young: http://en.wikipedia.org/wiki/Neil_young - Joni Mitchell: http://en.wikipedia.org/wiki/File:Joni_mitchell_1974.jpg - Michael Stipe: (R.E.M.): http://en.wikipedia.org/wiki/Michael_Stipe - Roger Waters: http://en.wikipedia.org/wiki/File:Roger_waters_leeds_1970.jpg - Three waves of peak environmental awareness. 1962 to 1970s (Hippie movement) 1992 to end of 1990s (after Rio Earth Summit) 2007 (Goreʼs Movie “An Inconvenient Truth” with increasing evidence of changes in the weather easily observable throughout the world making people more concerned.) - The 1980s was a low point.

- Some Grossbeaks near Lockport Nova Scotia.

- Ad Busters is an NGO which tries to make people aware of the effects of advertising. http://www.adbusters.org/

http://jonathanlevinegallery.com/?method=Blog.PressReleasesDetail&entryID=F00AA5CC-BE7A-F688-F83E1E594F2C4A36

Culture Jammers modify ads like this one to send the opposite message...Started by Calle Lasn who founded Adbusters.

Kalle Lasn used to work in advertising and realized that it made use of psychological manipulation techniques to sell people often unnecessary goods and services which were harming the environment. He founded Adbusters to draw awareness to impacts and dangers of advertizing. “ In his first book Culture Jam, he argues that consumerism is the fundamental evil of the modern era. He calls for a "meme war": a battle of ideas to shift Western society away from consumer capitalism. His second book, Design Anarchy, calls on graphic designers, illustrators and others to turn from working in service to corporate and political pollution of both the planet and "the mental environment", and embrace a radical new aesthetic devoted to social and environmental responsibility.[citation needed] His third book, Occupy Econ 101 (Seven Stories Press, Fall 2012), will include contributions from Nobel Prize winner Joseph Stiglitz, Paul Samuelson, George Akerlof, Lourdes Benería, Julie Matthaei, Manfred Max-Neef, David Orrell, Paul Gilding, Mathis Wackernagel and the father of ecological economics Herman Daly, among others.[2]” (Wikipedia entry on Kalle Lasn”) http://en.wikipedia.org/wiki/Kalle_Lasn Source: http://en.wikipedia.org/wiki/Culture_jamming

$/ tonne

ESE (2008)

= 18

$ MD = 50

MAC 2050

EBAU (2008)

=40

net GHG Emissions Tonnes CO2e/ year

M A

C 2012

Suppose Material Girl’s MAC is as follows where x-axis is in tonnes per year. She then goes to see the movie...

- note that correctly, the total private surplus of Madonna will include her consumer private surplus and her producer surplus (like plane trips to concerts). Lets just pretend that the area under her MAC is her total consumer surplus under BAU. Note her BAU emissions is in tonnes (not Megatonnes as with our electricity plant or Gigatonnes as with our planetary MACs). - recall that the average Canadian has a BAU footprint of 20 tonnes per capita based on production emissions divided by the population. The number will be somewhat different than this due to imports and exports. Also, foreigners own some of our production such that this producer surplus should be counted as foreign footprints and vice versa when Canadians own foreign assets.

and...

- Watch the trailer here: http://www.youtube.com/watch?v=wnjx6KETmi4 - The picture book is on reserve in the library (a great read and fast way to get overview of the science and economics). - Rent the full firm -- fastest way to get an overview of this course.

See trailer here: http://www.youtube.com/watch?v=AB7VF980cEA

$/ tonne

ESE (2012)

= 1.9

$ MD = 50

MAC 2050

EBAU (2008)

=40

net GHG Emissions Tonnes CO2e/ year

M A

C 2012

She realizes she is a big part of the problem and makes lifestyle changes. She experiences a private surplus loss from emissions due to feelings of guilt shame and a warm glow from helping others.

EBAU (2008)

- note that the MAC may also shift down if she experiences guilt costs and warm glow benefits for each and every emission. Question: What is the new MAC? Answer: MAC (E2012) = 80 - 16E Find the SE emissions level in 2012 assuming no shift of MD. Set MAC (E2012) = MD 80 - 16 E2012 = 50 E2012 = 1.87 Tonnes CO2e/ year (increase)

People derive utility from status goods like top hats, large homes, fancy cars and the latest fashions.

These conspicuous consumption items (positional goods) serve to provide people with social status. These goods often have large footprints and could be substituted for low GHG versions.

Ads target people by making them feel inferior if they don’t have these goods.

For example, a small eco friendly home could serve as a display of wealth. Income caps also put limits on the conspicuous consumption arms races enabling people to rank themselves without the footprints. This is an abatement “win win” as discussed by Stern.

- This is the “keep up with the Joneʼs phenomena”. When Jones buys a bigger house, his neighbours feel inferior and now they work harder at their jobs to earn more money to buy a bigger house too. Everyone may end out far worse off than had they agreed to work less and live in smaller houses. They are money rich but time poor and are caught up in the rat race! http://shootingthestars.files.wordpress.com/2011/04/rat- race-wheel.gif This is an example of a prisonerʼs dilemma. - Jones imposes a negative externality on the other households when he buys the bigger house. This is called a “user externality”. Much of the decisions going on here are subconscious driven by our fast emotional brains such that we are unaware of the psychological motivations. Studying psychology can help us to understand ourselves such that we do not get caught up in positional goods arms races.

Summary of MAC Shifts: In the above section, we discussed reasons for MAC shifts including supply side shifts due to inventing and adopting low GHG technologies and increases in energy efficiency. The importance of adopting low GHG technologies now to get us on an efficient long run path, thereby avoiding Jevon’s paradox was emphasized.

The MAC may shift due to demand side factors including population growth (shift out) and a change in materialist attitudes (shift in).

The affect on advertising and its promotion of materialistic attitudes by psychological methods was discussed as were the problem of status arms races in positional goods.

3 - Shifts of MD

“ The scientific evidence points to increasing risks of serious, irreversible impacts from climate change associated with business-as- usual (BAU) paths for emissions”.

Stern Review, Executive Summary pg. iii

http://www.hm-treasury.gov.uk/d/Executive_Summary.pdf

“ Even if the annual flow of emissions did not increase beyond today's rate, the stock of greenhouse gases in the atmosphere would reach double pre-industrial levels by 2050 - that is 550ppm CO2e - and would continue growing thereafter. But the annual flow of emissions is accelerating, as fast-growing economies invest in high- carbon infrastructure and as demand for energy and transport increases around the world. The level of 550ppm CO2e could be reached as early as 2035. At this level there is at least a 77% chance - and perhaps up to a 99% chance, depending on the climate model used - of a global average temperature rise exceeding 2°C”. (Stern, Executive Summary)

If, the CO2 concentration reaches, 675 ppm, there would be a 50% chance of exceeding 4 0 C. Is it possible that it could get this hot by 2099?

- Figure 2 from Stern Executive summary. - Image of Artistʼs Depictions of the Predictions of Climate Change Models. Source: Vince, Gaia (Feb. 25th, 2009) How to Survive the Coming Century, “The New Scientist”, Issue 2697. http://www.newscientist.com/article/mg20126971.700-how-to-survive-the-coming-century.html

Alas the answer is yes, under the A1F1 SRES scenario, of rapid fossil fuel intensive energy growth, population peaking by mid century, global income convergence and high rates of technological innovation with improved efficiency, the average estimate for average global surface warming is 4 0 C.

40C

The Stern Review, Executive Summary, Pg. v http://www.hm-treasury.gov.uk/d/Executive_Summary.pdf

Wind SolarGeothermal

Land lost (sea level rise) (assumes 2 m)

Potential for Reforestation

Food Growing Zones/ compact high rise cities

Uninhabitable due to floods, drought, or extreme weather

Uninhabitable dessert

- Note: This is an artistʼs depiction based on scientific studies and its from a popular science journal, not a peer reviewed science journal. Nevertheless, it allows us to think about possibilities. - There is uncertainty. For example, although basic climate change models predict that the Southern USA will become increasingly dryer, effects of climate change on El Ninos can work the other way. Also, some models predict a possible greening of the Sahel region due to complicated weather patterns.. - The map also indicates possible future siting of renewable energies with large solar farms covering the equatorial desserts and large offshore wind farms and geothermal in Mexico, Central Asia, Europe, East Africa, the Middle East and Australia. - I find the use of brown to illustrate the areas that are “uninhabitable due to floods, drought or extreme weather” misleading because yellow was used for desserts, so brown suggests it is really dry while some of these areas are expected to experience heavy flooding (which is the opposite of dry).

Source: Vince, Gaia (Feb. 25th, 2009) How to Survive the Coming Century, “The New Scientist”, Issue 2697. http:// www.newscientist.com/article/mg20126971.700-how-to- survive-the-coming-century.html

76Source: Nordhaus, W. 2005

Models Estimate Higher Carbon Prices as time progresses. Scientists predict the marginal damages will rise over time.

- Note that the marginal damage at each point in time is equal to the carbon price. - Note these carbon prices are in $ per tonne carbon --to get into prices in carbon dioxide equivalents, we divide by 44/12.

MD and Carbon Price Shifting Upwards Over Time based on Nordhaus model run with Stern Assumptions

$/tonne C

650

MD(2015)

GHG emissions (gigatonnes CO2-

eq per year)

0 0

MD(2055)

MD(2095)950

100

These marginal damages are taken from the previous graph using the Stern numbers. The basic idea is that the damages of each additional emission added within a one year period are similar although increasing very gradually (unless some tipping point were to be reached within that year). - Hence, marginal damages within a given year are depicted as horizontal lines. Over the century, they are however increasing as the GHGs build up. This corresponds to upward shifts in the MDs over time causing $SE carbon prices to rise.

MD and Carbon Price Shifting Upwards Over Time based on Nordhaus model run with Stern Assumptions

$/tonne C

650

MD(2015)

GHG emissions (gigatonnes CO2- eq per century)

0 0

MD(2055)

MD(2095) 950

100

5000

- The long run MAC is upward sloping as shown above. Notice the x- axis is now in units of GHGs per centuries. The short run MACs are still the horizontal straight lines, imagine the old x-axis for these lines.

Why would marginal damages, that is the damages to the third parties from each additional tonne of carbon dioxide equivalents to the atmosphere, be rising over time?

* this means that total damages plotted against cumulative emissions over the century are increasing exponentially. (for math students, note MD is derivative of total damage curve with respect to emissions).

Concentration GHGs in atmosphere

Surface Temp

Size of Impacts

Time

$ Damages per additional GHG = MD

Cumulative Emissions +

Econo mists

scientists

- the first basic reason that the marginal damages are increasing in emissions is because emissions accumulate in the atmosphere. As they build up, they cause bigger temperature changes and bigger impacts to climate and bigger impacts to the human systems. Cumulative pollutants tend to have flat short term marginal damage curves and upward sloping long run marginal damage curves. This contrasts with non-accumulative pollutants like SO2 and NOx, which have upwards sloping MDs in the short run, but disappear (ex. are broken down by natural systems) over the longer run.

Ex. Damage costs increase disproportionately for small increases in peak wind speed.

- illustrated in Stern Review, Chapter 3

Here we see that as the wind speed (a climate change impact which is positively related to total emissions over century) rises, the monetary total damage estimates increase exponentially. This is one impact that causes the MD to slope upward over the longer term.

- For another example, consider that as temperature rises from 1 to 20C above preindustrial, the millions at risk from storm surges does not increase much. However, if we go over 20C, the number of people at risk begins to rise rapidly. These numbers are higher with higher populations. The letters A2, B2, and A1/B1 refer to various climate change scenarios, a component of which is population growth. We will be discussing these scenarios which are part of the United Nations IPPC reports. - Many damage categories start to rise rapidly after the average surface temperature warms by 20C which is why our global Copenhagen target is to prevent a 20C rise in the average surface temperature.

Malaria incidence expected to increase as follows...

- increase of 2 degrees C --> additional 40 - 60 mill exposed - increase of 3-4 degrees C --> additional 70 - 80 mill people exposed.

-Again, the increase in total damages is exponential which means the marginal damage is increasing in the cumulative emissions. Source photos: wikipedia, see malaria.

Temp Change relative to Preindustrial (0C) 1 - at least 10% of land species extinct

(one estimate) 2 - 15 - 40% species face extinction

- high risk polar bear, caribou extinction

3 - 20 - 50% (one estimate) (mammals, 25 - 60%, birds, 30 - 40%, butterflies in South Africa, 15 - 70%) - collapse Amazon rain forest (some models)

4 - loss of around half arctic tundra

Stern: Highlights of Possible Climate Impacts on Species Extinctions and Ecosystems

Northern Sportiff Lemur (19 individuals estimated to remain)

- Polar bears have survived the interglacials of the Pleistocene Epoch (last 2 million years) and earlier based on DNA evidence. The last interglacial period (125,000 years ago was warmer than today and the polar bears survived but their habitat shrunk. - Whales in the arctic are at risk due to infectious diseases that will be carried by whales (like orcas) from warmer waters as their habitat moves North (ex. Bowhead/ Narwhale) - As a last resort, polar bears could be fed by humans and kept on nature preserves. - many species are already threatened, with some like this Northern Sportiff Lemur (a fairly close relative with which we share a common ancestor, 63 mya) on the brink of extinction. If we cannot bother to save close relatives with only 0.8 0C of average surface temperature change, one wonders whether preventing an extinction will be a priority with 3 or 4 0C of change.

(tonnes CO2e/ century)

∆E = 1 / tonne

∆ TD = $100

Suppose that total damages are linear and increasing at a rate of $100/tonne. What are marginal damages?

100

200

$/ tonne CO2e

100 MD

- The marginal damage is the rate at which total damages change with emissions and corresponds to the slope of a tangent on the TD curve. -Calculus Students: MD = dTD/dE. TD = integral of MD from 0 to E, i.e. area under the MD curve. Similarly, MAC = dTAC/dE.

(tonnes CO2e/ century)

MD = ∆ TD/ ∆E = (200 - 100 tonnes) /(1 tonne)

= $100/tonne

∆E = 1 / tonne

∆ TD = $100

Suppose that total damages are linear and increasing at a rate of $100/tonne. What are marginal damages?

100

200

$/ tonne CO2e

33 34

GHGs/ century

$/ tonne CO2e E

MD = slope tangent on TD.

Now suppose total damages are increasing at an increasing rate as estimates suggest. What does MD look like?

∆E = 1 tonne

∆ TD = $ 400

∆E = 1 tonne

∆ TD = $ 50

400

- the MD is the slope of a tangent on the total damage curve. To get the slope of a point on the TD curve, draw a tangent line and then pick two points on the tangent and calculate the rise over the run to get the slope.

Summary MD Shifts:

As GHGs accumulate in the atmosphere, each additional emission is predicted to cause increasingly more damages. This results in a yearly marginal damage curve which is fairly flat as each emission added in a given year causes about the same amount of damages as the last one.

Over the longer time frame, the marginal damage curve slopes upward.

4- Relate Shifts of MAC and MD to possible $ SE Price and Emissions Trajectories.

- Next we put the MAC and MD shifts together to illustrate how the socially efficient carbon prices and emissions levels and BAU emissions levels may change over time .

- Assume MDs shift upwards over time and that the MAC shifts in due to renewable energy adoption being the dominant reason for the MAC shift.

- There are multiple possibilities.

$/tonne CO2e

Emissions (Gt CO2e

/year)

0 42

M AC 2000

Suppose in 2000, the SE price of carbon is $25/tonne and the SE emissions is 40 Gt.

ESE

2000

MD 200025

- Note that my carbon prices are much lower than Sternʼs estimates but are similar to Nordhausʼs. My shifts are not realistic and my y-intercept is too low.

$/tonne CO2e

Emissions (Gt CO2e

/year)

0 42

M AC 2000

If the MAC & MD shift as illustrated, in 2010, the $SE price of carbon is $50/tonne & the $SE emissions is 30 Gt.

ESE

2000

MD 2000 MD 2010

M AC 2010

ESE

2010

4030

$/tonne CO2e

Emissions (Gt CO2e

/year)

0 42

M AC 2000

Suppose in 2020, the MAC & MD have shifted as illustrated, now the $SE price of carbon is $25/t & the SE emissions is 40 Gt.

ESE

2000

MD 2000 MD 2010

M AC 2010

M A

C 2020

ESE

2010 ESE

2020

403022

MD 2020

time

Socially Efficient Carbon Price Trajectory

Socially Efficient GHG Emissions Reduction Trajectory

gT CO2e/year

$/tonne CO2e

25 50

2000 2010 2020

- The shifting MACs and MDs can be used to trace out the monetarily SE emissions trajectories and $SE carbon price trajectories. - These are outputs from climate economy models to be discussed later.

Optimal emissions reduction trajectory: For < 550 ppm CO2 eq target:

2000

peak during 2005 to 2025

fall at rate of 1% to 3% per year

net GHG emissions (Gigatonnes CO2-eq)

Optimal emissions reduction trajectory: For < 450 ppm CO2 eq target:

2025

You are in your 60s with a world economy which Stern suggests may be 3-4 times “larger” with over 9 billion people. You may have grandchildren.

2050

31.5 (25% reduction)

11 (70% reduction)

2050

peak during

2005 to 2015

fall at rate of 5% per year

Note: James Hansen, the famous NASA scientist recommends 350 ppm or lower. His target is based on actual observations of temperature changes and Paleoclimate.

net GHG emissions (Gigatonnes CO2-eq)

time

Sketches of the Stern Trajectories

- Stern uses a variety of methodologies with his climate economy being referred to as PAGE. Much of his analysis looks at cost effective ways to meet the 450 to 550 ppm stabilization targets recommended by the international panel of scientists under the UN IPCC (United Nations International Panel on Climate Change). - Note emissions are allowed to rise. The later or higher the peak, the faster we need to reduce later to meet the same stabilization target.

675

Conc CO2 (ppm)

2180

Year

We need to go back 32 million years to get this conc. of CO2!! (poles about 4 degrees warmer)

- Nordhaus socially efficient trajectory - Nordhaus BAU trajectory

390

BAU

280

1050

back 36 million years to get this conc. of CO2!! (poles about 5 degrees warmer based on sediment proxy)

Sketch Nordhaus Results:

2011

- Nordhaus does not constrain his models based on UN IPCC targets but instead the target is determined within the model based on weighing the tradeoffs between abatement costs in near future with damages which are higher in the more distant future. His DICE and RICE models contain both a model of the economy and a very basic climate model. His model suggests its optimal to let temperatures rise almost 30 relative to preindustrial with atmospheric CO2 at 675 ppms which significantly higher than targets suggested by UN IPCC panel of scientists. He estimates that under BAU, emissions would rise to 1050 ppm (a level not experienced for about 36 million years). He recommends a carbon tax but a lower one than Stern. - Norhausʼs model is provided in books like “A question of Balance” available on the web and at his webpage. Nordhausʼs web page: http://nordhaus.econ.yale.edu/

Nordhaus $ SE conc. 1050

280

180

ppm CO2-eq

pre-industrial

depth ice age

650

Nordhaus Est. BAU

Eocene Thermal

Max

- To get an idea of what kind of impacts we would expect from BAU emissions and the Nordhaus “socially efficient” stabilization target of 650 ppms, check out the graph of Zachos et al. - These scientists used oxygen isotope ratios in ocean temperatures to estimate past temperatures going back 70 million years. Note that 65 million years ago, a large asteroid hit the planet causing the dinosaurs to go extinct. The planet was very hot back then with no polar ice caps and with high CO2 concentrations of more than 1000 ppm. After this, it gradually gets even hotter at a peak 55 mya. It then gradually gets colder until about 35 mya when we start to build ice caps on Antarctica. The thicker parts of the curve indicate oscillations in temperature due to glacial cycles and they are biggest during the Pleistocene Epoch (last 2 mya until Holocene) when there is more ice on the poles. Recall that during the depth of the Pleistocene ice ages, CO2 is about 180 ppm, 100 ppms lower than the pre-industrial level. - When there are no ice caps, there are no glacial cycles so curves are thinner.

- Stern and Nordhaus Models give very different carbon price trajectories.

Source: Nordhaus, W. “A Question of Balance”

- Source, Nordhaus, W. “A Question of Balance”, pg. 188 - Entire book is available here: http://nordhaus.econ.yale.edu/Balance_2nd_proofs.pdf - For students interested in learning the details of climate economy models, this book is a great place to start. Unfortunately, the modelling is complex requiring background in long run growth models (sometimes taught in 4th year Macroeconomics and learned in Masters Level macroeconomics). If you have studied the Solow model, you will have some idea of how these models work.

6- Predictions of BAU Emissions

http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/media/3/2/Chapter_7_Projecting_the_Growth_of_Greenhouse- Gas_Emissions.pdf (see page 173 Stern Review, ch. 7)

BAU emissions can be estimated by making projections of individual components of Kaya Identity:

CO2 emissions from energy =

Population GDP/ person

Energy Use Per Unit of GDP

CO2 emissions per unit energy used

* * *

287,000,000 people *

34,430 $/person

= 2.52 tonnes CO2 /toe

* 230.8 * 106 toe/ GDP

20.02 tonnes CO2/person287,000,000 people

= *

= 5.7 Gigatonnes CO2/ year

- from section 7.3, Stern Review - one tonne oil equivalent = 41.87 gigajoules - for students interested in a detailed analysis, see part III of the Stern Review with chapter 7 giving an overview. - the example given is for the USA. Canadaʼs is slightly larger as is Australias. These are more than twice the size of the footprint of a British, French or German Person. - note that these footprints are from the perspective of production. Consumption footprints can be lower or higher....for example, if the people in a country import a lot of GHG intensive manufactures. - the two last terms multiplied together give the carbon dioxide intensity of GDP

Current: 7 billion people!!

- If all other aspects of the Kaya equation stay equal, by 2050, population would increase by 32% and GHG emissions would increase by 32% per year.

http://qualicuminstitute.ca/cause.php

GDP is also rising which (all else equal) would cause CO2 to rise.

- 8 fold increase in real GDP measure over 20th century

- 1900 - 2000 (2.9%/year) - 1950 - 2000 (3.9%/year)

- unequally distributed net benefits of these GHGs.

We can see that CO2 emissions per head are correlated with GDP per head in the USA

Stern, Pg. 181

- Basically, the more stuff that is consumed, the more energy required and the more emissions. There are some factors which would tend to decrease GHGs as income increases. For example, high income people are generally more educated and so can adopt post materialistic attitudes and can afford to buy (what are often more expensive) low GHG versions of goods and services. Also, as they have higher incomes, they are more likely to be able to afford to put into place pollution control technologies. However in the case of GHGs, the effect of income on being able to purchase more stuff strongly outweighs the other steps. As most peopleʼs incomes rise, so does their carbon footprint. For discussion of environmental Kuznetʼs curve, see appendix ch. 7 Stern Review.

http://www2.yk.psu.edu/~dxl31/econ14/lecture12.html http://qualicuminstitute.ca/cause.php

- energy and materials throughput into economy at expense of natural capital (ecosystem productivity) - limits to growth - disinvestment in natural capital like our atmosphere, our fisheries, our forests. - all else equal increasing GDP will increase GHGs

Ecologists warn of limits to increasing GDP

http://data.worldbank.org/indicator/EG.GDP.PUSE.KO.PP

Real GDP per unit energy use (PPP $ per kg of oil equivalent) has been rising==> energy use per unit real GDP has been falling. All else equal this would reduce CO2 emissions.

- Price elasticity of demand for energy estimated at 0.23 %. This means that if price increases by 10%, energy demand would decrease by 2.3% - Country data on energy use per unit GDP for countries can be found here.http://unstats.un.org/unsd/mdg/SeriesDetail.aspx?srid=648 - http://data.worldbank.org/indicator/EG.GDP.PUSE.KO.PP

1994 - 2006: - Canada (0.86 to 0.73) - Germany (0.52 to 0.43) - Europe (0.54 - 0.45) - China (3.99 to 2.85) (fell from 7.98 to 3.99) from 1980 to 1994)

Globally, the greenhouse intensity of GDP is falling but unevenly. All else equal, this would tend to decrease GHGs.

- Data for all other countries available here: [XLS] World Carbon Intensity - U.S. Department of Energy

ftp://ftp.eia.doe.gov/pub/international/iealf/tableh1gco2.x

Although CO2 per unit output is falling due to less energy per unit output and less CO2 per unit energy, growth in population and output dominates causing CO2 to rise.

CO2 emissions from energy

Population GDP/ person

Energy Use Per Unit of GDP

CO2 emissions per unit energy used

* * *

1.4 %

= * =

1.4 % 1.9 % 1.9 %

- from section 7.3, Stern Review - one tonne oil equivalent = 41.87 gigajoules - for students interested in a detailed analysis, see part III of the Stern Review with chapter 7 giving an overview. - note that even if the population growth rate was reduced to 0, if the cancelling out of GDP per person and CO2 intensity per unit GDP was to continue, energy CO2 emissions would stay constant--but we need to bring them down to prevent increases in the CO2 concentration.

“ Overall, the statement that under BAU, global emissions will be sufficient to propel GHG concentrations to over 550 ppm by 2050 and over 650 to 750 ppm by the end of the century is robust to a wide range of assumptions.”

-- Nicolas Stern (2006)

http://www.epa.gov/climatechange/emissions/globalghg.html

Emissions keep rising --reducing them will be a great challenge

http://www.epa.gov/climatechange/emissions/globalghg.html

- We can see sources of GHG emissions growth (or shrinkage) across countries can be broken down into the four components of the Kaya Equation. Note highest growth rates in non-Annex 1 Parties including India and China. Both have high GDP growth rates. China’s energy intensity of GDP is falling the fastest (from an inefficient start point) but its carbon intensity of energy is rising. - UK and economies in transition are reducing CO2 emissions.

Stern, Pg. 179

- We can see here that GHGs are rising fastest in the non Annex 1 countries. However, even if these countries did not exist, the GHGs from the early industrializers would still lead to dangerous anthropogenic global warming. Per capita footprints need to be reduced in the affluent countries and developing countries will need to develop in a non-carbon intensive manner.

6. Shifts MAC MD under Future Emissions Reduction Scenarios.

- Four main groups of narrative story lines were identified with 3 subgroups in A1 scenario (fossil fuel intensive, non-fossil fuel intensive, balanced). These were completed by 1998. - Teams then began quantifying the various storylines to estimate GHG emissions. These include Sulphur emissions as these are aerosols working against global warming.

Figure TS2 from UN IPCC Special Report on Emissions Scenarios (2002) http://www.grida.no/publications/other/ipcc_sr/

- Estimates of components behind MAC and MD shifts and hence BAU trajectories and SE emissions and carbon price trajectories are based on emissions scenarios which include what policy (or lack of policy) we take to reduce GHGs.

- Does not include UN FCCC process explicitly (ex. Kyoto)

- The IPPC released a Special Report on Emissions Scenarios in the third annual report (TAR, 2002).

For a one page summary of the Special Report on Emissions Scenarios (SRES), please click here: (see pg. 18 of IPCC Fourth assessment Report of 2007. http://www.ipcc.ch/pdf/assessment-report/ar4/wg1/ar4-wg1-spm.pdf

- how quickly we replace fossil fuels with low GHG energy sources. - how efficient we are in using energy and GHGs to make energy. - whether we can safely capture emissions using “capture and storage technology” like pumping CO2 along pipelines into oil wells and if it is safe to deposit liquid CO2 at bottom of oceans. - how we change our land use to repair the carbon sinks - the population growth rate and the extent to which we change per capita energy use (including rises in what are currently low income countries). - our political will to put into place policies like carbon taxes and whether we cooperate as a world under UN FCCC to coordinate these taxes or go it alone. - rate of adoption of post materialistic attitudes. - shift to information and service based vs material economy.

What emissions trajectory actually occurs will depend upon what we do--including:

- Climate scientists have attempted to estimate emissions trajectories based upon a variety of possible fossil fuel emissions scenarios for the future.

- It is hoped that this will help point policy in a direction of low emissions. The IPCC (3rd report) has developed 4 basic story lines as follows.

- Four Basic Story Lines (A1, A2, B1, and B2) include BAU (increased fossil fuel use) and conservation scenarios. - No probabilities assigned to scenarios (uncertain) - note: only includes fossil fuel emissions on graphs.

1) Emissions scenario A1: “One Global Family” - A1-F1 : fossil fuel intensive - A1T: non-fossil fuel intensive - A1B: mixture

- rapid growth in total energy consumed and produced. - big decrease in global income inequality. - population peaks in mid 21st century at 9 billion people and then falls. - new more efficient technologies invented and deployed.

Assumptions:

- Recall A1F1 has a high probability of taking us to a 4 degree warmer world by 2099. Special Report on Emissions Scenarios, UN IPCC, 2002 http://www.grida.no/publications/other/ipcc_sr/

- None of these trajectories allows for stabilization at 450 ppms

2) Emissions scenario A2: “A Divided World”

- In this world, people fail to make international agreements to reduce emissions but adopt local solutions to environmental problems. Technological growth is slower and population keeps rising.

B1 Story Line: Global Utopia

- global agreements to reduce GHGs - rapid switch to information and service economy away from the “material girl” world. - population peaks by 2050 and then falls. - low GHG technologies and more efficient use of GHGs.

DP: page 86

- world population continues to increase

- mid levels of raising global real income.

- new energy technology develops relatively slowly.

- failure at international agreements to reduce GHGs and instead work locally.

“Scientists make no attempt to estimate the likelyhoods for any of these possible scenarios occurring; the uncertainties are simply too large.”

Michael Mann and Lee Kump (2009), DP page 87

- A view of two scientists.

Photo sources: Lee Kump http://www.marine.usf.edu/news/archives-2009.shtml Michael Mann - Famous for tree ring temperature and carbon dioxide hockey stick graphs supporting the theory that the greenhouse effect due to fossil fuel powered industrialization is causing the temperature to rise. Mann has been heavily attacked by climate change deniers. http://www.realclimate.org/index.php/archives/2004/12/michael-mann/

The only story line which comes close to meeting the 450 - 550 ppm UN IPPC target is the B1 Story Line: Global Utopia

- global cooperation in .

- rapid switch to information and service economy away from the “material girl” world.

- population peaks by 2050 and then falls.

- low GHG technologies and more efficient use of GHGs.

DP: page 86

- although there is global cooperation with “emphasis on local solutions to economic, social, and environmental sustainability including improved equity”, there is no UN FCCC process. - “ It is worthwhile noting that only the most conservation-minded scenarios are likely to avoid warming in excess of 2 degrees C. This is the benchmark rise that is often cited as constituting dangerous human-interference with the climate (see pg. 108 DP).” (Quote by Mann and Kump, pg. 88 DP). - ? why do the scenarios ignore the potential of the UN FCCC process when there is a pollution haven effect in its absence. Do the scenarios include the possibility of tariff wars?

These different emissions scenarios draw attention to the importance of

- global international agreements to solve prisoner’s dilemmas. - pricing GHGs to provide incentives to switch to low GHG technology and to become more energy efficient. - change in materialistic attitudes to stewardship attitudes. - policy to slow population growth and then reduce the population.

Exercise: Pick one of the SRES scenarios and write down how you think that the MACs and MDs will shift given the scenario. I bet your emissions trajectory wonʼt look nearly as tidy as our nice hypothetical one on slide 104.

7-Summary

In this lecture, we investigated reasons for shifts in MACs and MDs. We then showed how this would affect future socially efficient emissions and carbon price trajectories and also BAU emissions levels in theory.

We then looked at methods scientists use to predict emissions trajectories with the help of the Kaya Equation.

We then looked at the IPCC emissions scenarios (SRES). These illustrated that key components of meeting the Copenhagen target of less than 2 degrees C temperature rise relative to pre-industrial.

These are: global cooperation, pricing greenhouse gas emissions, slowing and reversing population growth and adopting conservationist attitudes which would enable us to use less energy.

Although energy efficiency and more generally using the GHGs efficiently is important, it was also argued that it is important to rapidly develop renewable energies so as to avoid Jevon’s paradox.

Spinoffs technologies like green batteries are expected to develop in response to adoption of renewable intermittent energy sources.

Fossil fuel resources are finite with oil projected to run out this century. So, even if there was no global warming problem, it still makes economic sense to adopt and invent renewable energies today. Saving fossil fuels will also provide us with a store of hydrocarbons for valuable plastics production.

Grim as things may look, there are solutions! As Al Gore notes, perhaps our main barrier to success is “political will”.

References:

Special Report on Emissions Scenarios, UN IPCC (2002)

http://www.grida.no/publications/other/ipcc_sr/

Look at Table SPM-1a for numbers like the population estimated for each scenario, the GDP, Ratio of income in Annex 1 to non- Annex 1, energy intensity, primary energy, coal share of primary energy, and how these change over time.