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 the crisis.
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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.
Julian Puckett
Robert Stavins
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.
More Efficient
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 direction.
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 momentum.
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 politically pragmatic.
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.
Reducing Costs
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 reports@wsj.com.
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