{ "title": "The True Cost of Reducing Greenhouse Gas Emissions", "sourceUrl": "https://www.imf.org/en/publications/fandd/issues/2019/12/the-true-cost-of-reducing-greenhouse-gas-emissions-gillingham", "canonical": "https://www.imf.org/en/publications/fandd/issues/2019/12/the-true-cost-of-reducing-greenhouse-gas-emissions-gillingham", "overlayPath": "/en/publications/fandd/issues/2019/12/the-true-cost-of-reducing-greenhouse-gas-emissions-gillingham/index.md", "summary": "The economic damage of climate change could be severe, says Yale’s Kenneth Gillingham. Policymakers must decide how much to spend on measures to reduce greenhouse gas emissions.", "sections": [ { "heading": "Scientific and policy context", "content": "- Climate change is associated with increasingly frequent and intense natural disasters ranging from droughts and wildfires to hurricanes and coastal flooding.\n- Climate scientists argue that emission reductions must be rapid and deep, with a goal of reaching net zero by 2050, if not sooner (Millar and others 2017).\n- The US Energy Information Administration’s International Energy Outlook 2019 projects that fossil fuels will still generate 57 percent of electricity in 2050.\n- Policymakers must decide how much to spend on measures to reduce greenhouse gas emissions and compare costs across options such as renewable-energy sources and electric cars." }, { "heading": "Short-term (static) cost assessment of technologies", "content": "- Method: estimate up-front costs and divide by tons of carbon dioxide (or equivalent) emissions reduced (example: $20 million to reduce 1 million tons → $20 per ton).\n- Renewable-energy technologies are among the least costly based on a review of recent literature and the Energy Information Administration’s Annual Energy Outlook 2018.\n- Caveat: estimates are averages from the United States and may vary by location and implementation; do not account for intermittency.\n- Intermittency issue: renewables must be complemented with storage technologies such as pumped hydroelectric storage or batteries, or with quick-response generation.\n- Natural gas combined-cycle generation cited as a low-cost, low-carbon alternative to coal in the United States; estimated cost cited as $27 per ton assumes no methane leaks.\n- Methane leak risk exemplified by the Aliso Canyon, California, leak in 2015, which could raise greenhouse gas emissions and per-ton costs for natural-gas generation." }, { "heading": "Social cost benchmarks and implications", "content": "- The Obama administration developed a central-case estimate of $50 per ton of carbon dioxide in 2019 as carbon’s social cost.\n- Using $50 per ton, several mitigation technologies are less expensive than the social cost, while others (e.g., solar thermal and offshore wind) are more expensive.\n- A recent IMF report estimates that a tax of $75 per ton of carbon dioxide applied around the world would make it possible to meet the Paris Agreement target of limiting global warming to 2˚C over preindustrial levels.\n- If the $75 per ton benchmark is used, advanced nuclear becomes an option less expensive than carbon’s social cost." }, { "heading": "Short-term costs of policy interventions", "content": "- Studies show an extremely wide range of policy costs.\n- Low-cost interventions: energy efficiency “nudges” (e.g., electricity-bill neighbor comparisons) can reduce electricity use by about 2 percent and yield net savings.\n- High-cost interventions: many subsidies for renewable generation and decarbonizing transportation appear expensive in short-run, static terms; the most expensive cited are subsidies for electric vehicles (partly because charging may use fossil-fuel-generated electricity).\n- Some costly technologies provide side benefits (e.g., reduced air pollution) that may improve their attractiveness beyond carbon-only cost metrics." }, { "heading": "Long-term, dynamic costs and innovation spillovers", "content": "- Climate change is long-term; carbon dioxide persists for hundreds to thousands of years, making technological change central to mitigation.\n- Spending on new technologies today may lower future mitigation costs via:\n - R&D spillovers (firms only partially appropriate gains).\n - Learning-by-doing and engineering/managerial improvements that lower costs with cumulative production.\n - Positive network effects (e.g., a common electric-vehicle charging standard).\n- Dynamic perspective: some approaches expensive in the short term (e.g., subsidies for electric vehicles) may spur innovation and lower long-term costs (Acemoglu and others 2016; Vogt-Schilb and others 2018).\n- Optimal long-term policy may differ from myopic short-term choices; uncertainty about technological paths remains, and long-term gains are more plausible for nascent low-carbon technologies." }, { "heading": "Feasibility, trade-offs, and recommended policy direction", "content": "- Deep decarbonization to approach net-zero greenhouse gas emissions by 2050 is feasible today—the technologies exist—but will be costly and challenging if undertaken all at once.\n- Inexpensive near-term measures include energy conservation, efficiency nudges, and replacing retiring fossil-fuel electricity generation with renewables; costs of these measures are already lower than the damage they would avert based on estimates of carbon’s social cost.\n- Many other approaches are quite costly in the short term, especially those promoting new low-carbon technologies.\n- When policies have strong potential to spur innovation, they may lead to much lower total costs over the longer term.\n- Policy recommendations:\n - Provide incentives for both low-cost greenhouse gas mitigation and low-carbon innovation.\n - Pursue economy-wide carbon pricing.\n - Judiciously invest in new technologies with high potential (examples noted include small modular nuclear reactors and carbon capture technologies) that could be game changers in achieving net-zero emissions at low cost.\n- Quotation reminding uncertainty of technological forecasting: “prediction is very difficult, especially if it is about the future.” (attributed to Niels Bohr in the source).\n\nKenneth Gillingham, F&D Magazine, December 2019\n\n---\n\n Content in this bundle\n\n- حساب الكربون\n - حساب الكربون (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - حساب الكربون (PDF){rel=\"external\" type=\"application/pdf\"}\n- Cálculos de carbono ● Finanzas y Desarrollo ● Diciembre de 2019\n - Cálculos de carbono ● Finanzas y Desarrollo ● Diciembre de 2019 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Cálculos de carbono ● Finanzas y Desarrollo ● Diciembre de 2019 (PDF){rel=\"external\" type=\"application/pdf\"}\n- La facture du carbone\n - La facture du carbone (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - La facture du carbone (PDF){rel=\"external\" type=\"application/pdf\"}\n- 脱炭素化の最適解とは\n - 脱炭素化の最適解とは (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - 脱炭素化の最適解とは (PDF){rel=\"external\" type=\"application/pdf\"}\n- Оценка борьбы с углеродным следом – Финансы и развитие – декабрь 2019 года\n - Оценка борьбы с углеродным следом – Финансы и развитие – декабрь 2019 года (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Оценка борьбы с углеродным следом – Финансы и развитие – декабрь 2019 года (PDF){rel=\"external\" type=\"application/pdf\"}\n- The True Cost of Reducing Greenhouse Gas Emissions – IMF F&D | DECEMBER 2019\n - The True Cost of Reducing Greenhouse Gas Emissions – IMF F&D | DECEMBER 2019 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - The True Cost of Reducing Greenhouse Gas Emissions – IMF F&D | DECEMBER 2019 (PDF){rel=\"external\" type=\"application/pdf\"}\n- The True Cost of Reducing Greenhouse Gas Emissions – IMF F&D | DECEMBER 2019\n - The True Cost of Reducing Greenhouse Gas Emissions – IMF F&D | DECEMBER 2019 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - The True Cost of Reducing Greenhouse Gas Emissions – IMF F&D | DECEMBER 2019 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/fandd/issues/2019/12/the-true-cost-of-reducing-greenhouse-gas-emissions-gillingham" } ], "bullets": [ "[Markdown version](/en/publications/fandd/issues/2019/12/the-true-cost-of-reducing-greenhouse-gas-emissions-gillingham/index.md)", "[Structured JSON version](/en/publications/fandd/issues/2019/12/the-true-cost-of-reducing-greenhouse-gas-emissions-gillingham/index.json)", "[Bundle manifest](/en/publications/fandd/issues/2019/12/the-true-cost-of-reducing-greenhouse-gas-emissions-gillingham/bundle-manifest.json)", "Authors: KENNETH GILLINGHAM", "Published: December 2, 2019", "DOI: https://doi.org/10.1086/261968", "Climate change is associated with increasingly frequent and intense natural disasters ranging from droughts and wildfires to hurricanes and coastal flooding.", "Climate scientists argue that emission reductions must be rapid and deep, with a goal of reaching net zero by 2050, if not sooner (Millar and others 2017).", "The US Energy Information Administration’s International Energy Outlook 2019 projects that fossil fuels will still generate 57 percent of electricity in 2050.", "Policymakers must decide how much to spend on measures to reduce greenhouse gas emissions and compare costs across options such as renewable-energy sources and electric cars.", "Method: estimate up-front costs and divide by tons of carbon dioxide (or equivalent) emissions reduced (example: $20 million to reduce 1 million tons → $20 per ton).", "Renewable-energy technologies are among the least costly based on a review of recent literature and the Energy Information Administration’s Annual Energy Outlook 2018.", "Caveat: estimates are averages from the United States and may vary by location and implementation; do not account for intermittency.", "Intermittency issue: renewables must be complemented with storage technologies such as pumped hydroelectric storage or batteries, or with quick-response generation.", "Natural gas combined-cycle generation cited as a low-cost, low-carbon alternative to coal in the United States; estimated cost cited as $27 per ton assumes no methane leaks.", "Methane leak risk exemplified by the Aliso Canyon, California, leak in 2015, which could raise greenhouse gas emissions and per-ton costs for natural-gas generation.", "The Obama administration developed a central-case estimate of $50 per ton of carbon dioxide in 2019 as carbon’s social cost.", "Using $50 per ton, several mitigation technologies are less expensive than the social cost, while others (e.g., solar thermal and offshore wind) are more expensive.", "A recent IMF report estimates that a tax of $75 per ton of carbon dioxide applied around the world would make it possible to meet the Paris Agreement target of limiting global warming to 2˚C over preindustrial levels.", "If the $75 per ton benchmark is used, advanced nuclear becomes an option less expensive than carbon’s social cost.", "Studies show an extremely wide range of policy costs.", "Low-cost interventions: energy efficiency “nudges” (e.g., electricity-bill neighbor comparisons) can reduce electricity use by about 2 percent and yield net savings.", "High-cost interventions: many subsidies for renewable generation and decarbonizing transportation appear expensive in short-run, static terms; the most expensive cited are subsidies for electric vehicles (partly because charging may use fossil-fuel-generated electricity).", "Some costly technologies provide side benefits (e.g., reduced air pollution) that may improve their attractiveness beyond carbon-only cost metrics.", "Climate change is long-term; carbon dioxide persists for hundreds to thousands of years, making technological change central to mitigation.", "Spending on new technologies today may lower future mitigation costs via:", "Dynamic perspective: some approaches expensive in the short term (e.g., subsidies for electric vehicles) may spur innovation and lower long-term costs (Acemoglu and others 2016; Vogt-Schilb and others 2018).", "Optimal long-term policy may differ from myopic short-term choices; uncertainty about technological paths remains, and long-term gains are more plausible for nascent low-carbon technologies.", "Deep decarbonization to approach net-zero greenhouse gas emissions by 2050 is feasible today—the technologies exist—but will be costly and challenging if undertaken all at once.", "Inexpensive near-term measures include energy conservation, efficiency nudges, and replacing retiring fossil-fuel electricity generation with renewables; costs of these measures are already lower than the damage they would avert based on estimates of carbon’s social cost.", "Many other approaches are quite costly in the short term, especially those promoting new low-carbon technologies.", "When policies have strong potential to spur innovation, they may lead to much lower total costs over the longer term.", "Policy recommendations:", "Quotation reminding uncertainty of technological forecasting: “prediction is very difficult, especially if it is about the future.” (attributed to Niels Bohr in the source).", "**حساب الكربون**", "**Cálculos de carbono ● Finanzas y Desarrollo ● Diciembre de 2019**", "**La facture du carbone**", "**脱炭素化の最適解とは**", "**Оценка борьбы с углеродным следом – Финансы и развитие – декабрь 2019 года**", "**The True Cost of Reducing Greenhouse Gas Emissions – IMF F&D | DECEMBER 2019**", "**The True Cost of Reducing Greenhouse Gas Emissions – IMF F&D | DECEMBER 2019**" ], "related": [ { "title": "حساب الكربون", "role": "document", "sourceUrl": "https://www.imf.org/-/media/files/publications/fandd/article/2019/december/ar/gillingham.pdf", "summary": { "path": "/-/media/files/publications/fandd/article/2019/december/ar/gillingham.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/publications/fandd/article/2019/december/ar/gillingham.pdf", "mime": "application/pdf" } }, { "title": "Cálculos de carbono ● Finanzas y Desarrollo ● Diciembre de 2019", "role": "document", "sourceUrl": "https://www.imf.org/-/media/files/publications/fandd/article/2019/december/es/the-true-cost-of-reducing-greenhouse-gas-emissions-gillingham.pdf", "summary": { "path": 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