Global Warming - users.econ.umn.eduusers.econ.umn.edu/~foster/Handouts Global Warming.pdf · GLOBAL...

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11/19/07 1

GLOBAL WARMING

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Global warming: The really long term

• Over the next 5 billion years, the sun willburn brighter– Expand in size to a red giant

– Encompass the orbit of Mercury.

• Life on earth will have been extinguisheddue to rise in temperature.

• Within 1 billion years, all water will haveevaporated, migrated to stratosphere, andthen to space.

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The really long term

• Within 500 million years, life will cease for lackof carbon dioxide.– Weathering of silicate rocks will sequester CO2

in the ocean as calcium carbonate.URL: http://www.xs4all.nl/~carlkop/toast.html

• The global warming that we will be discussing ison a much shorter time scale: decades andcenturies, not millions of years.

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The science behind (possible) global warming• There is no consensus among earth scientists that

we are experiencing global warming.– Most believe that we are, but the evidence is not clear.

• I have given you a (voluntary) reading that laysout the sceptics’ case clearly: Meyer, Warren(2007) "A Layman's Guide to Man-Made GlobalWarming”.

• I will not spend much time on the sceptics’ casebecause economic issues arise only if we treatglobal warming as a serious possibility for whichwe should prepare.

• But here are two pictures to show thattemperatures have varied a lot over time.

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a. The greenhouse effect

Much of following is taken from Arrow,Kenneth J. (2007) "Global Climate Change:A Challenge to Policy," on reading list.

• Some of the earth’s heat comes from themolten rock in the earth’s core, and somefrom radioactive rock, but the maindeterminant of the earth’s temperature issolar radiation.

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a. The greenhouse effect• In a steady state

– the radiation that comes to the earth from the sun asvisible light

– is radiated back out into space as longer, infraredwaves

• the wavelength determined by the heat of the earth.

• Since space is at approximately absolute zero, if itwere not for– earth’s atmosphere and– the effect of internally-generated heat

one might think that the part of the earth notreceiving solar rays would also also be atapproximately absolute zero,– with all of the heat coming in as visible light

transmitted back into space as infrared radiation.

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• That’s not true. Given:– direct warming of the sun and– internally generated heat

it is estimated that the average temperatureof the earth without atmosphere would bejust below 00F– rather than its current value of about 600F.

• That 600F difference is due to thegreenhouse effect of the atmosphere.

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a. The greenhouse effect• Most of the earth’s atmosphere is nitrogen and

oxygen,– both in their normal states are transparent to visible

light and to infrared radiation.• “Trace gases” (i.e., gases present only in trace

amounts)– transparent to the visible light coming from the sun, but– absorb energy emitted by the earth in the infrared

spectrum: they retain some of the heat.– That heat retention by trace gases is what is called the

“greenhouse effect”– Crudely speaking these gases act like the glass in a

greenhouse, retaining the solar heat• (though the analogy is very crude since it is not the glass in

the greenhouse that gets warm but the air inside the glass).

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• The greenhouse gases, in order of relativeabundance:– water vapor (H2O)– carbon dioxide (CO2)– methane (CH4)– nitrous oxide (N2O)– ozone– chlorofleurocarbons (CFCs).

• Quantity is not the relevant measure:– methane and some of the less abundant gases absorb

more heat than does CO2 .– Most except H2O are produced in part or in total by

human activity.11/19/07 12

a. The greenhouse effect: Water vapor

• Water vapor comes from air passing overwater bodies,– especially when the water is warmer than the

air.– But the warmer the air the more water vapor it

can hold,– There is a feedback effect in which higher air

temperature leads to more water vapor, whichleads to a higher air temperature

– This description ignores the effect of clouds,summarized below.

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a. The greenhouse effect: CO2

• CO2 comes from volcanic eruptions but also fromrespiration of animals and from organic wastes.

• CO2 is also a byproduct of combustion (which isjust a fast form of decomposition of organicwastes)– so CO2 has always been recycled into the atmosphere

by naturally occurring fires.– With the industrial revolution there has been a dramatic

increase in the pace of combustion, especially fromfossil fuels in which the carbon had been sequesteredfor millennia.

– As a result, it is virtually without question that humanactivity is increasing the amount of CO2 in the air, withan attendant greenhouse effect.

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a. The greenhouse effect: CO2

• Natural sinks for CO2 include– solution in water bodies (i.e. it dissolves) and– formation of biomass via photosynthesis

(wood, peat, coal).• But it takes a long time for these sinks to

operate: CO2 stays in the atmosphere forapproximately 500 years.

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a. The greenhouse effect: Methane

• Methane is about 75% (or 97%?) of natural gas• Methane also comes from volcanoes, fermentation

in the process of digestion by animals, andanaerobic decomposition of garbage.

• There are huge amounts sequestered on the bottomof oceans, and smaller amounts in the ice of bogsin the arctic tundra.– Enough (perhaps a trillion tons) so that some scientists

think that methane released from the ocean might havecaused some of the great extinctions in ancient times.

– There are documented cases of human deaths caused byrelease of methane from lake bottoms (1800 in one casein Africa).

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a. The greenhouse effect: Methane

• Most of the methane in the atmosphereoxidizes into CO2 and water.

• Some is sequestered into soils, and somelost into the stratosphere and then to space.

• Its half-life is about 7 years; within that 7year period it is about 20 times as effectiveas CO2 as a greenhouse gas.

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a. The greenhouse effect: Ozone

• Ozone (O3, a molecule consisting of 3 oxygenatoms), unlike normal oxygen (O2) absorbsinfrared radiation in the troposphere, and so isanother greenhouse gas.

• It is the equivalent of about 25% of the sameamount of CO2 and has a short half-life.

• Sources are mostly from products of fuelcombustion or evaporation, reacting with sunlightwith ozone as a byproduct.

• It is also created by lightning.

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a. The greenhouse effect: Ozone

• Ozone sinks include– Photochemical processes in the air– Chemical reactions with surface emissions– Direct deposition onto the surface of leaves

animals, people, soil …

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a. The greenhouse effect:Nitrous Oxide• Human sources

– burning of fossil fuels, esp. coal;– nitrogen fertilizer.– Only about 1/2 as large as natural sources.

• Natural source– burning vegetation– Volcanoes– Soils– lightning.

• Natural sinks are mostly by breakdown in theatmosphere into nitrogen oxide and dioxide.

• N2O stays in the atmosphere for approx. 150 yrs.

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a. The greenhouse effect:CFCs

• Chlorofluorocarbons (CFCs) come from– aerosol propellants– Refrigerants– Solvents– Plastics– resins.

• There are no natural sources.• Natural sinks: Oceans, deserts.• CFCs are 100,000 times as effective a heat trap as CO2.• Their lifetime in the atmosphere is approx. 75 – 110

years.

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• Based on the most recent scientific report:• “the current level of CO2

– (plus other greenhouse gases, in CO2 equivalents)

is today about 430 parts per million (ppm)– compared with 280 ppm before the Industrial

Revolution.

• With the present and growing rate ofemissions, the level could reach 550 ppm by2035.

• This is almost twice the pre-industrial level,and a level that has not been reached forseveral million years”. (Arrow, ibid.)

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b. Potential climate change and its impact

• Recently developed climate change models saythat this concentration of CO2 would raise thetemperature of the earth by at least 2 degreesCelsius (almost 40F).

• Current trends would be likely to lead to a three-fold increase in the amount of CO2 by the end ofthe 21st century,– with a likely increase in temperature of 50C,

• “About the same as the increase from the last iceage to the present” (Arrow).

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• These forecasts, and the likely consequences, areboth highly uncertain.

• Recall the possible reinforcing feedback from CO2to higher temperature to increased water vapor tostill higher temperature.

• Increased water vapor also leads to more cloudformation, and clouds have two effects.– First, they reflect heat that would otherwise radiate to

space to the ground.– Second, they reflect light that would otherwise radiate

from the sun to the earth back to space.

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• The second effect is the more importantone, so clouds lead to a negative feedbackon temperature:– clouds increase the earth’s albedo (the fraction

of incident light that is reflected).• In addition to the increased evaporation that

will come from warmer oceans, thesolubility of CO2 in the ocean depends onwater temperature. As the water getswarmer, the ocean releases CO2.– Another positive feedback.

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More feedbacks• Snow and ice cover:

– Warmer air means more snow and ice melt, loweringalbedo (another positive feedback effect).

• Possible shifts in ocean currents could lead to acolder Europe, increasing albedo (negativefeedback).

• Moreover, some scientists now think that awarmer earth will mean more snow falling andaccumulating in the extreme north and south,– because of the higher level of general precipitation and– air currents that will move water vapor toward the

poles.If so, this will moderate global warming (negativefeedback).

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More feedbacks

• Another feedback can come from thewarming of arctic tundra: release ofmethane now sequestered in frozen bogs.

• Similarly, as global warming heats theoceans, methane may be released, possiblyin huge amounts, from ocean beds, perhapsleading to abrupt temperature increase.

• All these possible effects increaseuncertainty of result.

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Consequences of rise in temperature: Rising seas

• equally challenging to predict.• Depending on the extent of ice melt, there could

be a significant rise in sea levels, leading to– the disappearance of some small island countries,– loss of a major fraction of the land area of some low-

lying countries (particularly Bangladesh), and– loss of some major coastal cities unless controlled by

extensive dikes• (London, Manhattan, and other major coastal cities).

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Consequences of rise in temperature: Rising seas

• The ice that might melt is mostly in Antarctica,– where something like 65% of the ice on earth resides,– in a body so massive that it rests on the ocean floor

• if it were floating, its melting would not affect water levels;

• but Antarctica does not appear to have beenaffected as much by global warming as standardmodels would predict, so this possibleconsequence is particularly difficult to forecast.

• The other source of ice that could have a majorimpact is the Greenland ice sheet.

• Glaciers, though melting is dramatic when seenfrom up close, are much less important as a sourceof increased water levels.

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Consequences of rise in temperature: Tropical storms• Tropical storms derive their energy from high

ocean temperatures.– So global warming is expected to lead to more, and

more violent, storms.• Economic impact is uncertain

– because of uncertainty about rainfall.• Agriculture will be benefited by higher CO2

concentration.• Temperature change and rainfall change could

shift crop suitability.• If we think of crops migrating north, arctic soils

are not suitable for wheat and corn, so there couldbe a big problem.

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Consequences of rise in temperature: species extinction

• If the climate change is rapid enough, itmight outrun the ability of species to move.– Especially plants and organisms that depend on

them.• Global warming seems likely to happen a

lot faster than previous climate changes.

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Possible responses to global warming*a. In addition to the uncertainty greenhouse gases,

here are other things we don’t know (fromSchelling).

1. If we don’t do anything about it, how much CO2will enter the atmosphere? That depends onpopulation growth, economic growth, andenergy-saving technology.

2. What will happen to climate across the world?(See Schelling’s detailed questions on p. 1 of hisarticle).

3. What will be the impact of climate change onagriculture, fisheries, forestry, health?

*See Schelling, Thomas C. (2007) "Climate Change: The Uncertainties,the Certainties and What They Imply About Action" (in syllabus).

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More uncertainties

4. How well will communities be able to adapt to climatechange?

5. What are likely costs of strategies to mitigate climatechange?

6. What will world be like in 50 – 100 years? Changes in mylifetime would not have been predictable when I was born(jet planes, computers, the internet, TV, electronmicroscopes, breaking of the genetic code, plate tectonics ...Can we usefully extrapolate the present into the far future?

7. To what extent is observed evidence of global warming dueto human activity?

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b. Summary of what we know

1. We have Mars and Venus as examples of what can happen withtoo little or too much of greenhouse gases.• Mars so deficient in greenhouse gases that surface temperature is too

cold for liquid water on the surface.• Venus is so bathed in greenhouse gases that the temperature is

hundreds of degrees above earth temperatures, with no liquid water.2. We know that greenhouse gases really do absorb infrared energy, in

controlled laboratory experiments.c. What should we do?

1. Keep studying the phenomenon of global warming. We know a lotmore now than we did 20 years ago.

2. Energy research and development (R&D), especially governmentsponsored.

3. The big question: Given uncertainty, should we proceed full-speed-ahead with abatement, or wait until we know more?

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c. What should we do?

• US government stance has been that we shouldwait because action would be costly. [This may bechanging.]

• In other areas of policy, we take out someinsurance against uncertain threats (terrorism,nuclear proliferation, vaccination for diseases).Why not here?

• Schelling thinks most serious threat is melting ofAntarctic ice sheet.– Raise water levels by up to 20 feet– Force 10s of millions of Bangladeshis to move or die.– Not likely in this century, but possible.

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c. What should we do?

• I think even more serious threat (maybe lesslikely) is massive reduction in worldwideagricultural output– leading to hundreds of millions (or more)

deaths by starvation.• Either risk suggests that we should begin to

take some insurance: relatively low-costmeasures to mitigate global warming.

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4. Policy measures

• The first thing to notice that mitigation of globalwarming is the world’s most extreme example of apublic good:– Anything I do to reduce my use of greenhouse gases

benefits not just• everyone else in Minneapolis• or in the US, but• everyone else in the world (greenhouse gases spread

worldwide).

• Deciding on whether or not to cut emissions is aprisoners’ dilemma game with every person in theworld as a player.

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International agreement?

• Economic theory says that the only way to cutemissions is through international agreements– with an enforcement mechanism to punish those who

don’t live up to the agreement.• But here is counter evidence

– If you feel guilty about use of energy, you can buycarbon credits. (Al Gore does, and so do many people)

– And see next slide. Apparently people feel so stronglyabout this issue that they do what they think is rightdespite the personal cost.

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International agreement?• In 2006, the CA Legislature reached an agreement

with Governor Arnold Schwarzenegger to reduce thestate's greenhouse-gas emissions by 25% by the year2020.– 12th-largest economy in the world

• In 2007, eight Northeastern US states are involved inthe Regional Greenhouse Gas Initiative (RGGI astate level emissions capping and trading program.

• Participating states: Maine, New Hampshire,Vermont, Connecticut, New York, New Jersey,Delaware, Massachusetts, and Maryland.

• Other states (including MN) also taking steps to saveenergy.

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International agreement?

• In 2007, 720 US cities in 50 states, DC andPuerto Rico, support Kyoto after MayorGreg Nickels of Seattle started a nationwideeffort to get cities to agree to the protocol. – Seattle met target reduction in 2005, reducing

their greenhouse gas emissions by 8 percentsince 1990.

– Minneapolis is part of the agreement.

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International agreement

• A UN group on climate change has been meetingannually since 1992 (Rio Earth Summit)– To reach agreement on mandatory reduction of

greenhouse gases.• 1997 reached agreement in Kyoto

– Developed countries would reduce emissions by anaverage of 5% below 1990 levels.

– Developing countries would not be limited, yet.• Reason: Rich countries have already taken advantage of

pollution to grow their economies.• To limit poor countries’ emissions is to lock them into poverty.

– Rich countries would pay poor countries to reduceemissions.

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Kyoto agreement

• US signed agreement– but neither Clinton nor Bush sent it to the Senate for

ratification.• Bush explicitly rejected because it did not force reductions for

China or India, 2 largest countries.– US not bound by agreement.

• Mechanism for reduction is a “cap and trade”system.– Cap: Strict limit on emissions– Trade: If don’t achieve the limit, can pay other

countries to reduce their emissions instead• Or sequester greenhouse gases already in the atmosphere.

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Kyoto agreement

• At US urging, there will be no monitoringuntil 2008.

• Agreement was to expire in 2012.• The 13th meeting of the group will be held

12/3/07 to 12/14/07 in Bali, seekingagreement on a timeline for post 2012framework.– 15,000 to 20,000 attendees.– What is still missing is a reliable mechanism

for enforcement.

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Cap and trade system and alternatives

• The cap and trade mechanism was used in the US firstfor limiting the emission of sulfur dioxide by powerplants.– There is a successful cap and trade system in effect now.– Designed mainly by MN Ph.D. in economics (Richard

Sandor)• Kyoto established a cap and trade system among

participating countriesfor greenhouse gases.– But does not specify how each individual country should

accomplish its own target for reduction.

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Possible mechanisms to limit emissions

• Alternatives:– Direct controls.

• Specify the technology to be used to control emissions.Or

• Set targets on level of emissions,and levy fines or otherpunishment for failure to achieve target.

– Tax on emissions.• Simply keep raising the tax until target level of

emissions is reached.– Cap and trade as described above (slide 41)

• All of these assume ability to monitoremissions, or monitor the method being used.

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Relative advantages: Direct controls

• Direct controls are the least efficient.– No economic choice is allowed as to where reductions

should come from.– If the controls are on the technology, there is no

incentive to develop more effective methods.• Consider if we were stuck with 1950s technology to limit

automobile emissions.

• But there are circumstances where it might beuseful.– E.g., much gasoline was lost through evaporation from

gas tanks in vehicles and gas stations.• Fairly simple technology cuts that sharply, and government has

mandated use of that technology.(Continued, next slide)

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Relative advantages: Direct controls

– As other sources are reduced, 2 and 4-cycle engines inlawnmowers, pleasure boats, snowmobiles and ATVsbecome more important

• particularly because many burn inefficiently, putting a lot ofhydrocarbons in the air.

• Specifying technology to cut that back can be justified.

– In southern Calif., where atmospheric inversions andconsequent smog are particularly severe, there has evenbeen consideration of outlawing charcoal lighter fluid!

• Taxes and cap and trade systems both do allowchoice.

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Relative advantages: Taxes

• Taxes are a straightforward way to make thepolluter bear the full costs of his choices,– including external costs as well as direct costs.– To be able to set a tax equal to the external

cost, the government must be able to• measure or estimate the pollution and• estimate the external cost.

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Relative advantages: Taxes• For greenhouse gases, measuring the

pollution is not difficult for relatively largestationary sources– (electric generating plants, garbage burners,

cement manufacturing plants, taconite plants,steel mills and other users of large amounts offuel)

• but is a challenge for small and mobilesources– (automobiles, trucks, diesel train engines, small

engines …). For these a tax solution is likely torely on crude estimates of pollution. See below.

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• The result of a tax equal to the external cost willbe that when polluter must pay full cost he findsthat polluting is more expensive than he thought,he will cut back.– This can come about simply by using less of the

polluting good, or– by redesign so as to cut back on emission of pollutant.

• As second best, can approximate the pollution aswith tax on gasoline.– Crude, because some vehicles pollute more than others,– and some trips cause more pollution than others.

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Relative advantages: Taxes• If it is difficult for government to agree internally

on the size of the external cost, it might still bepossible to agree on a target for reducing thepollution– (that is what the Kyoto protocol did with respect to

greenhouse gas emissions by industrial countries).– Then can start with a somewhat arbitrary level of tax

and over time adjust the tax to achieve the targetedlevel of emissions.

• Those who can cut emissions most cheaply will doso, economizing on the tax.

• Those for whom cutting emissions would be mostexpensive will pay the tax instead but are likely tocut back the quantity as the cost goes up.

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• There will be a continuing incentive to findways to reduce the polluting emissions so asto avoid the tax.

• Some environmentalists object to a tax as a“license to pollute.”

• But any direct regulation implicitly gives alicense to pollute unless it demandscomplete prohibition.

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• Imposing a tax leaves the question of whatis done with the tax revenues.– There will be a great political temptation for

government to consider the tax receipts to be awindfall to be used for pet projects.

– Public acceptance of the tax is likely to begreater if revenues are set aside to reduceanother unpopular tax.

• E.g., a greatly increased gasoline tax might betolerated at least by mid- and upper-income groupsif it were to be used to cut the alternative minimumtax.

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• However, if a particular industry is to be harmedby the tax– (oil industry, automobile industry, trucking industry)

their lobbyists will focus on defeating the tax,which makes use of this tool problematic.

• And for a higher tax on gasoline, the AmericanAutomobile Association and other user groups arelikely to lobby against it, with individual votersasked to write to their own congress members tooppose the tax.

• Again, makes use of this tool problematic.11/19/07 54

Relative advantages: Cap and trade system• A cap and trade system means that the administrator

(usually a government) creates a new property right– in the case of greenhouse gases, the right to release a certain

amount of emissions into the air.• In creating the property right they can set an absolute

limit on the amount of pollution (the cap).• There must be a law that defines the property right

and specifies punishment for “stealing” the right bycreating emissions without the proper license.

• There must be an enforcement mechanism so that noone emits unless they own the right to do so.

• So there must be a measuring system to monitor howmuch is released.

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Relative advantages: Cap and trade system

• For greenhouse gases, a cap and tradesystem is unlikely to be applied to allpossible emitters– because of the difficulty of measuring

emissions from small and mobile sources.• It is likely to be applied only to large,

stationary sources.

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• The system can work in two different ways.– The government starts out owning all of the newly

created property rights,• represented by a fixed number of permits to emit (e.g.) 1 ton of

CO2.

– It can sell these permits or give them away.– Economists have usually recommended selling the

rights, because they have value and the whole societyshould share in that value;

– if the government sells the rights, economists haveusually recommended that it be by auction, so that themarket clears with demand for the permits equal to thesupply.

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• If it gives the rights away, it is likely to give themto the companies that are now responsible for theemissions.

• Of course, the cap and trade system with emissionpermits given away is particularly attractive tothose whose emissions are to be reduced– because they are given a property right to keep

polluting without having to pay a tax or buy permits.• It is only at the margin, as the pollution target is

lowered, that they face a cost either to reduceemissions themselves or to pay someone else to doit for them.

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Relative advantages: Cap and trade system• Other property rights created by government have

been distributed by auction, without much protest– but these were cases when no-one was already using

those rights.– The band of the electromagnetic spectrum used for cell

phones was auctioned, with huge sums paid for theprivilege of transmission rights.

– Similarly for offshore oil drilling rights.– But in the case of greenhouse gas emissions, the

polluting companies previously had the right to pollute,and establishing the cap-and-trade system (or a tax)threatens to take away that right and then sell it back.

– They have generally managed to get the systemestablished as a giveaway rather than an auction.

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• The international cap and trade system hadlittle choice but to follow that sameprocedure:– “Give” each country subject to limits the right

to produce their target level with the right tobuy permits to if they would not or could notreduce their emissions to the targeted level.

• Who would they trade with, under theKyoto agreement?

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• To avoid confusion, remember that there are twotrading systems operating:– One among countries that signed the Kyoto agreement– A second among individual firms within the European

Union to help them achieve targeted reductionsassigned by their own governments to achieve Kyototargets

• This discussion concerns trading among countries.• Trading would normally be among emitters within

the same system.– But Kyoto agreement devised a “clean development

mechanism” (CDM) to expand the opportunities fortrade.

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The Clean Development Mechanism (CDM)

• CDM permits firms in industrializedcountries (under mandate to reduce CO2) toinvest in projects in developing countriesthat will reduce greenhouse gases.– Projects must be approved by a scientific

committee• Must judge them to be projects that would not have

been undertaken without the investment fromoutside.

• E. g., energy-saving projects that would beprofitable on their own.

• Or project to “avoid” destruction of forest thatwould have been left intact with no outside funds.

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The Clean Development Mechanism (CDM)

• Over 1500 such projects to date.• Claimed* that many projects are fraudulent

– Especially trifleuromethane (HFC-23) reduction.– See lecture notes for excerpt from SciAm.

*Victor & Cullenward, Scientific American 12/2007.

Global Warming - users.econ.umn.eduusers.econ.umn.edu/~foster/Handouts Global Warming.pdf · GLOBAL...

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