Jonathan Camuzeaux: EDF Voices

How we underestimate the costs of climate change, and why it matters now

Cities, states and businesses are still feeling the shock. The coronavirus has stolen more than 138,000 lives and obliterated budgets. Had the U.S. better prepared for the fallout, some of the impacts would have been less severe.

Countries in Asia, for example, accustomed to managing fast-moving viruses after their experiences with SARS, have fared much better than the United States, which leads all countries with 3.43 million COVID-19 cases.

Costs from climate will likely have similar effects, and sooner than we think. Understanding—or better yet, predicting—what we could face in the future is crucial for making the case for policy action today, not after calamity strikes.

Calculating climate costs is daunting

To make these calculations, economists rely on Integrated Economic Assessment models to estimate future costs of climate change. These models are complex tools that link emissions projections to climate and ultimately societal impacts, measured in metrics such as the costs of poorer health outcomes, lost labor, damage to infrastructure, agricultural losses and death. Economists can then value the economic cost of a changing climate in dollar amounts.

The estimated costs from prominent models vary, but they all emphasize how much we currently underestimate climate damages. One recent study focuses on just a few sectors, (agriculture, crime, coastal storms, energy, human mortality and labor), and finds that damages will cost about 1.2% of gross domestic product per +1°C on average.

4 ways the right policies can help us confront wildfires

Even so, estimating outcomes is exceedingly challenging, and many assessments have been leaving out or significantly underestimating several of the serious consequences of climate change on lives and livelihoods.

For example, some economists argue that integrated assessment models do not capture the potential for tipping points adequately, where impacts from climate change can either accelerate abruptly, or become irreversible, leaving us in an unprecedented scenario -- perhaps much like the unprecedented times we are experiencing right now. Integrated economic assessment models do their best to reproduce the world’s climate, economy and systems as they exist and function today. Even so, they are ill suited to estimate what will happen in a world where our climate system is pushed past a breaking point.

In addition, there are many intangible impacts that cannot be evaluated solely using economic costs – among them, the loss of cultural heritage, or the trauma of losing your home, getting hospitalized, or losing a loved one.

Every economic model under-values the costs of climate change

What is clear: the damage estimates from these models do not adequately value future well-being and non-monetary factors. Simply put, no matter the model, the numbers it produces are more likely than not too low.

We’ve seen this play out in other major disasters.

The California Wildfires, Hurricanes Katrina and Sandy, and even the Mississippi river flood of 1927 not only resulted in direct catastrophic economic losses to the residents of those areas, they also contributed to trauma, loss of stability and displacement from those communities. Losses that weren’t quantified in damage assessments. Even less well-known disasters resulted in monumental damages. The 2006 California heat wave, for example, cost $5.4 billion, while an outbreak of West Nile Virus in Louisiana cost an estimated $207 million.

We know that climate change is going to be expensive. And it will likely be more expensive than we are able to estimate. That knowledge should prod policymakers to take action now—before it’s too late.

Inaction brought the entire world economy to its knees in a matter of weeks during a pandemic that scientists warned us would come.

Climate change is already starting to wreak havoc on the planet. We don’t have time to wait while the federal government is stymied under the Trump administration’s inaction—and in some cases—proactive rollbacks of climate protections. Just as they have in the pandemic, state and local leaders can and should lead the way to prepare for an uncertain and costly climate future.

tmoran July 23, 2020 - 12:21

How we underestimate the costs of climate change, and why it matters now

Cities, states and businesses are still feeling the shock. The coronavirus has stolen more than 138,000 lives and obliterated budgets. Had the U.S. better prepared for the fallout, some of the impacts would have been less severe.

Countries in Asia, for example, accustomed to managing fast-moving viruses after their experiences with SARS, have fared much better than the United States, which leads all countries with 3.43 million COVID-19 cases.

Costs from climate will likely have similar effects, and sooner than we think. Understanding—or better yet, predicting—what we could face in the future is crucial for making the case for policy action today, not after calamity strikes.

Calculating climate costs is daunting

To make these calculations, economists rely on Integrated Economic Assessment models to estimate future costs of climate change. These models are complex tools that link emissions projections to climate and ultimately societal impacts, measured in metrics such as the costs of poorer health outcomes, lost labor, damage to infrastructure, agricultural losses and death. Economists can then value the economic cost of a changing climate in dollar amounts.

The estimated costs from prominent models vary, but they all emphasize how much we currently underestimate climate damages. One recent study focuses on just a few sectors, (agriculture, crime, coastal storms, energy, human mortality and labor), and finds that damages will cost about 1.2% of gross domestic product per +1°C on average.

4 ways the right policies can help us confront wildfires

Even so, estimating outcomes is exceedingly challenging, and many assessments have been leaving out or significantly underestimating several of the serious consequences of climate change on lives and livelihoods.

For example, some economists argue that integrated assessment models do not capture the potential for tipping points adequately, where impacts from climate change can either accelerate abruptly, or become irreversible, leaving us in an unprecedented scenario -- perhaps much like the unprecedented times we are experiencing right now. Integrated economic assessment models do their best to reproduce the world’s climate, economy and systems as they exist and function today. Even so, they are ill suited to estimate what will happen in a world where our climate system is pushed past a breaking point.

In addition, there are many intangible impacts that cannot be evaluated solely using economic costs – among them, the loss of cultural heritage, or the trauma of losing your home, getting hospitalized, or losing a loved one.

Every economic model under-values the costs of climate change

What is clear: the damage estimates from these models do not adequately value future well-being and non-monetary factors. Simply put, no matter the model, the numbers it produces are more likely than not too low.

We’ve seen this play out in other major disasters.

The California Wildfires, Hurricanes Katrina and Sandy, and even the Mississippi river flood of 1927 not only resulted in direct catastrophic economic losses to the residents of those areas, they also contributed to trauma, loss of stability and displacement from those communities. Losses that weren’t quantified in damage assessments. Even less well-known disasters resulted in monumental damages. The 2006 California heat wave, for example, cost $5.4 billion, while an outbreak of West Nile Virus in Louisiana cost an estimated $207 million.

We know that climate change is going to be expensive. And it will likely be more expensive than we are able to estimate. That knowledge should prod policymakers to take action now—before it’s too late.

Inaction brought the entire world economy to its knees in a matter of weeks during a pandemic that scientists warned us would come.

Climate change is already starting to wreak havoc on the planet. We don’t have time to wait while the federal government is stymied under the Trump administration’s inaction—and in some cases—proactive rollbacks of climate protections. Just as they have in the pandemic, state and local leaders can and should lead the way to prepare for an uncertain and costly climate future.

tmoran July 23, 2020 - 12:21

Natural gas-fueled buses and trucks: Will the climate really benefit?

At a time when companies and governments are looking more closely at alternative fuel sources to reduce their environmental impact, many players in the transportation sector are considering shifting their bus or commercial truck fleets from diesel to natural gas fuel.  

They’re looking for an advantage in carbon dioxide (CO2) emissions as well as fuel costs savings to justify the higher vehicle costs and reduced fuel efficiency of natural gas vehicles.

Climate benefits uncertain at best

They may be surprised to know, however, that natural gas-powered vehicles are not necessarily more climate-friendly than their diesel fumes-spewing counterparts.

To make sure a fuel switch brings immediate climate benefits, we must make engine-efficiency improvements and major cuts in potent heat-trapping methane emissions along the natural gas value chain. If these steps are not taken, moving truck fleets from diesel to natural gas could actually increase warming for decades to come.

This is a growing concern today as the market share for such vehicles seems poised to grow.

While only about 3 percent of new freight trucks run on natural gas today, some analysts suggest their market share could reach as high as 20 percent over the next decade if high oil and diesel prices return. Meanwhile, investments in natural gas-powered utility vehicles and transit buses are growing, with 11 percent of such vehicles already running on gas.

It means we must address the problem of methane emissions today, before market penetration becomes significant and the technology is locked in and harder to change.

Natural gas value chain full of leaks

Methane – the main ingredient in natural gas and a greenhouse gas many times more potent than CO2 – is leaked to the atmosphere from the point where it’s first extracted from the ground to when it’s burned by a vehicle barreling down the expressway.

Natural gas: 5 areas of concern Explore how to keep this energy source safe for people and the environment.

While natural gas releases less CO2 than diesel to the atmosphere when it is combusted, methane leaks from the production and transportation of natural gas has the potential to remove some or all of the climate benefits companies are looking for as they upgrade their fleets.

Adding to the challenge, today’s natural gas truck engines can be as much as 15 percent less efficient than diesel engines. Consuming more fuel for each mile traveled also reduces their net pollution reductions.

The opportunity ahead

Emissions in the natural gas value chain therefore represent a rare opportunity to achieve significant, cost-effective reductions in overall greenhouse gas emissions. If, in addition to reductions in methane leakage, the efficiency gap can be closed, natural gas trucks will fare that much better compared to diesel.

Much depends on several policy mechanisms currently in play, which could improve the climate prospects for these new buses and trucks. The new policies include anticipated federal methane regulations and upcoming federal fuel efficiency and greenhouse gas standards for heavy trucks.

The proposed new standards for heavy trucks would bring welcome reductions of certain sources of methane emissions occurring at the vehicle level. While this will certainly help, reductions upstream are crucial to maximize the potential benefits of natural gas trucks – which is where the federal methane standards come in.

In the meantime, we need to use caution. Before we encourage the trucking sector to switch to natural gas fuel, the United States needs to act sufficiently to reduce emissions and improve natural gas engine efficiency.

If we don’t, we could go from bad to worse.

krives August 13, 2015 - 10:14

Natural gas-fueled buses and trucks: Will the climate really benefit?

At a time when companies and governments are looking more closely at alternative fuel sources to reduce their environmental impact, many players in the transportation sector are considering shifting their bus or commercial truck fleets from diesel to natural gas fuel.  

They’re looking for an advantage in carbon dioxide (CO2) emissions as well as fuel costs savings to justify the higher vehicle costs and reduced fuel efficiency of natural gas vehicles.

Climate benefits uncertain at best

They may be surprised to know, however, that natural gas-powered vehicles are not necessarily more climate-friendly than their diesel fumes-spewing counterparts.

To make sure a fuel switch brings immediate climate benefits, we must make engine-efficiency improvements and major cuts in potent heat-trapping methane emissions along the natural gas value chain. If these steps are not taken, moving truck fleets from diesel to natural gas could actually increase warming for decades to come.

This is a growing concern today as the market share for such vehicles seems poised to grow.

While only about 3 percent of new freight trucks run on natural gas today, some analysts suggest their market share could reach as high as 20 percent over the next decade if high oil and diesel prices return. Meanwhile, investments in natural gas-powered utility vehicles and transit buses are growing, with 11 percent of such vehicles already running on gas.

It means we must address the problem of methane emissions today, before market penetration becomes significant and the technology is locked in and harder to change.

Natural gas value chain full of leaks

Methane – the main ingredient in natural gas and a greenhouse gas many times more potent than CO2 – is leaked to the atmosphere from the point where it’s first extracted from the ground to when it’s burned by a vehicle barreling down the expressway.

Natural gas: 5 areas of concern Explore how to keep this energy source safe for people and the environment.

While natural gas releases less CO2 than diesel to the atmosphere when it is combusted, methane leaks from the production and transportation of natural gas has the potential to remove some or all of the climate benefits companies are looking for as they upgrade their fleets.

Adding to the challenge, today’s natural gas truck engines can be as much as 15 percent less efficient than diesel engines. Consuming more fuel for each mile traveled also reduces their net pollution reductions.

The opportunity ahead

Emissions in the natural gas value chain therefore represent a rare opportunity to achieve significant, cost-effective reductions in overall greenhouse gas emissions. If, in addition to reductions in methane leakage, the efficiency gap can be closed, natural gas trucks will fare that much better compared to diesel.

Much depends on several policy mechanisms currently in play, which could improve the climate prospects for these new buses and trucks. The new policies include anticipated federal methane regulations and upcoming federal fuel efficiency and greenhouse gas standards for heavy trucks.

The proposed new standards for heavy trucks would bring welcome reductions of certain sources of methane emissions occurring at the vehicle level. While this will certainly help, reductions upstream are crucial to maximize the potential benefits of natural gas trucks – which is where the federal methane standards come in.

In the meantime, we need to use caution. Before we encourage the trucking sector to switch to natural gas fuel, the United States needs to act sufficiently to reduce emissions and improve natural gas engine efficiency.

If we don’t, we could go from bad to worse.

krives August 13, 2015 - 10:14

The holy grail of climate economics? A price on carbon.

If there were a competition for the most important number in the world, the price on carbon would certainly be a strong contender.

The World Bank has been a long-time supporter of carbon pricing and its recent report, Decarbonizing Development, adds a strong voice to the chorus of climate policy experts, economists, and business leaders who champion the economic, social and environmental benefits of pricing pollution.

The report underscores the importance of getting the economics of climate change policies right so we can transition cost-effectively to a carbon-neutral economy.

Because we live in a world of ‘bottom-up’ climate policy, the authors rightfully say, this will require multi-pronged policy solutions, each tailored to a country’s particular economic and political conditions.

At the heart of this broader approach, however, lies the holy grail of climate economics: a price on carbon.

Markets bring results - fossil fuel subsidies don’t

Global temperatures must stay below the 2 degrees Celsius threshold for the world to avoid catastrophic climate change. This requires that net carbon emissions are reduced to zero by the middle to the end of the century.

A price on pollution has been shown time and time again to be the most cost-effective way to reduce emissions. By internalizing the cost of pollution to firms - meaning, making polluters pay for the right to emit carbon - they will have an incentive to reduce emissions and look for the cheapest emissions reduction options.

A tax on carbon, or a cap-and-trade system where permits - or allowances to emit carbon - are auctioned to firms, have the added benefit of bolstering government coffers. The additional revenue can be used to, for example, offset costs low-income households incur should power rates or costs on goods rise.

It can also be used to reduce taxes, including taxes on labor and capital that can affect social welfare and create market inefficiencies.

The World Bank reminds us that getting the price right will include removing costly subsidies on fossil fuels – now estimated at $548 billion worldwide. In addition to encouraging the overconsumption of fossil fuels, these subsidies have proven ineffective for helping the poor or for promoting competitiveness.

A mix of policies can boost clean energy 

A comprehensive climate policy package should include a mix of additional policies to help address other market failures, the report notes. Policy makers can help boost innovation in clean technologies, for example, by supplementing a carbon price with temporary support for investments, targeted subsidies, performance standards and technology mandates.

Case in point: California’s AB 32 program, which guarantees emissions reductions through a market based cap-and-trade program while supplementing the cap with a range of statewide regulations.

Among other things, the legislation incentivizes utilities to invest in renewables and requires building, vehicle and appliance efficiency standards that help consumers save on their electricity bills.

Next: A global price on carbon

Some countries may choose to rely on such regulatory measures alone and opt out of market-based solutions for the time being. Such policies will certainly bring countries closer to meeting their emissions goals.

In the long-term, however, a carbon price must form the linchpin of any viable national emissions reduction plan.

And ultimately, if we’re to meet that net-zero carbon emissions goal in the most cost-effective way, all countries should face the same global carbon price.

krives July 8, 2015 - 03:23

The holy grail of climate economics? A price on carbon.

If there were a competition for the most important number in the world, the price on carbon would certainly be a strong contender.

The World Bank has been a long-time supporter of carbon pricing and its recent report, Decarbonizing Development, adds a strong voice to the chorus of climate policy experts, economists, and business leaders who champion the economic, social and environmental benefits of pricing pollution.

The report underscores the importance of getting the economics of climate change policies right so we can transition cost-effectively to a carbon-neutral economy.

Because we live in a world of ‘bottom-up’ climate policy, the authors rightfully say, this will require multi-pronged policy solutions, each tailored to a country’s particular economic and political conditions.

At the heart of this broader approach, however, lies the holy grail of climate economics: a price on carbon.

Markets bring results - fossil fuel subsidies don’t

Global temperatures must stay below the 2 degrees Celsius threshold for the world to avoid catastrophic climate change. This requires that net carbon emissions are reduced to zero by the middle to the end of the century.

A price on pollution has been shown time and time again to be the most cost-effective way to reduce emissions. By internalizing the cost of pollution to firms - meaning, making polluters pay for the right to emit carbon - they will have an incentive to reduce emissions and look for the cheapest emissions reduction options.

A tax on carbon, or a cap-and-trade system where permits - or allowances to emit carbon - are auctioned to firms, have the added benefit of bolstering government coffers. The additional revenue can be used to, for example, offset costs low-income households incur should power rates or costs on goods rise.

It can also be used to reduce taxes, including taxes on labor and capital that can affect social welfare and create market inefficiencies.

The World Bank reminds us that getting the price right will include removing costly subsidies on fossil fuels – now estimated at $548 billion worldwide. In addition to encouraging the overconsumption of fossil fuels, these subsidies have proven ineffective for helping the poor or for promoting competitiveness.

A mix of policies can boost clean energy 

A comprehensive climate policy package should include a mix of additional policies to help address other market failures, the report notes. Policy makers can help boost innovation in clean technologies, for example, by supplementing a carbon price with temporary support for investments, targeted subsidies, performance standards and technology mandates.

Case in point: California’s AB 32 program, which guarantees emissions reductions through a market based cap-and-trade program while supplementing the cap with a range of statewide regulations.

Among other things, the legislation incentivizes utilities to invest in renewables and requires building, vehicle and appliance efficiency standards that help consumers save on their electricity bills.

Next: A global price on carbon

Some countries may choose to rely on such regulatory measures alone and opt out of market-based solutions for the time being. Such policies will certainly bring countries closer to meeting their emissions goals.

In the long-term, however, a carbon price must form the linchpin of any viable national emissions reduction plan.

And ultimately, if we’re to meet that net-zero carbon emissions goal in the most cost-effective way, all countries should face the same global carbon price.

krives July 8, 2015 - 03:23

European emissions trading: It's the tons reduced that matter most

Last Thursday, the New York Times detailed the European Union’s most recent efforts to strengthen its carbon-emissions trading system: EU officials voted last week to reduce the number of carbon allowances in the system, a welcomed step for the world’s most ambitious carbon market to drive even more significant reductions than it has already achieved. Fewer allowances will increase the price of permits, which in turn will drive companies to take emissions into account in their energy investment decisions. Thursday’s vote brought a rise in prices of approximately 7% reaching about €6.60 ($9). However, the New York Times reported, that price is still far below where analysts say it needs to be to have an impact on the EU’s energy choices.

Not so.

Yes, a high price on carbon is good, but the price is not the end-all signal we should be looking at. In short: “Judge a carbon market by its cap, not its prices.”

That’s the clear message from a Financial Times op-ed, co-authored by EDF experts Nathaniel Keohane and Gernot Wagner last summer. The op-ed reminds us that, as we focus on the European carbon price, we often forget that it has succeeded at reducing emissions – its foremost goal – and will continue to do so. The EU’s system was on its way to achieving about 70% reductions below 1990 levels by 2050 even before last Thursday’s further strengthening of the system.

Like in any other market, carbon prices will rise and fall. The reductions, however, will happen by law. Low carbon prices can provide the opportunity to tighten caps further, an opportunity EU policymakers seized last Thursday, but the end goal is not for emissions to be expensive. The climate only notices how much emissions are reduced, not how much it costs to do so.

dupham February 12, 2014 - 03:17

European emissions trading: It's the tons reduced that matter most

Last Thursday, the New York Times detailed the European Union’s most recent efforts to strengthen its carbon-emissions trading system: EU officials voted last week to reduce the number of carbon allowances in the system, a welcomed step for the world’s most ambitious carbon market to drive even more significant reductions than it has already achieved. Fewer allowances will increase the price of permits, which in turn will drive companies to take emissions into account in their energy investment decisions. Thursday’s vote brought a rise in prices of approximately 7% reaching about €6.60 ($9). However, the New York Times reported, that price is still far below where analysts say it needs to be to have an impact on the EU’s energy choices.

Not so.

Yes, a high price on carbon is good, but the price is not the end-all signal we should be looking at. In short: “Judge a carbon market by its cap, not its prices.”

That’s the clear message from a Financial Times op-ed, co-authored by EDF experts Nathaniel Keohane and Gernot Wagner last summer. The op-ed reminds us that, as we focus on the European carbon price, we often forget that it has succeeded at reducing emissions – its foremost goal – and will continue to do so. The EU’s system was on its way to achieving about 70% reductions below 1990 levels by 2050 even before last Thursday’s further strengthening of the system.

Like in any other market, carbon prices will rise and fall. The reductions, however, will happen by law. Low carbon prices can provide the opportunity to tighten caps further, an opportunity EU policymakers seized last Thursday, but the end goal is not for emissions to be expensive. The climate only notices how much emissions are reduced, not how much it costs to do so.

dupham February 12, 2014 - 03:17