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GAO releases report summarizing views of leading economists on climate change policy

June 20th, 2008 No comments

At the request of Congress, the General Accounting Office has prepared and recently publicly released a report, “Expert Opinion on Economics of Policy Options to Address Climate Change,” which summarizes the views of leading climate change economists in the U.S. on the cost and benefits of taking national action on climate change and regarding various policy options.

Key items from the transmittal cover letter to Congress include the following:

All of the panelists agreed that the Congress should consider using a market-based mechanism to establish a price on greenhouse gas emissions.

The majority of panelists agreed that the United States should establish a price on greenhouse gas emissions as soon as possible regardless of the extent to which other countries adopt similar policies. At the same time, the majority of panelists said it was at least somewhat important to participate in international negotiations on climate change.

Experts differed on the initial stringency of the market-based mechanism, with 14 of the 18 panelists recommending an initial price between less than $1 and $20 per ton of emissions.

14 of 18 panelists were at least moderately certain that the benefits of their recommended portfolio of actions would outweigh the costs.

To establish a price on emissions, most of the panelists preferred either a tax on emissions or a hybrid policy that incorporates features of both a tax and a cap-and-trade program. A tax would set a fixed price on every ton of emissions, whereas a cap-and-trade program would limit or cap total emissions and establish a market for trading (buying and selling) permits to emit a specific amount of greenhouse gases. Under the cap-and-trade system, the market would determine the price of emissions. A hybrid system differs from a traditional cap-and-trade system in that the government would cap emissions, but could sell additional emissions permits if the permit price rose above a predetermined level.

Panelists identified key strengths and limitations of alternative policy approaches that should be of assistance to the Congress in weighing the potential benefits and costs of different policies for addressing climate change. Many panelists said that a cap-and-trade program would be more effective in achieving a desired level of greenhouse gas emissions because, unlike a tax, it would provide certainty that emissions wouldn’t exceed a certain level. However, some of the panelists also said that taxes would be more cost-effective than a cap-and-trade program because the price of emissions would be certain and not susceptible to market fluctuations. Eight panelists therefore preferred a hybrid approach that incorporates features of both a tax and a cap-and-trade program.

On average, the panelists rated cost effectiveness as the most important criterion for evaluating various policy options.

Finally, panelists said an important strength of using a market-based approach is the ability for the government to raise revenue through a tax or the sale of emissions permits and to use that revenue to offset the adverse effects of the policy.

The introduction contains a brief but useful summary of climate change knowledge and policy action to date in the US and internationally, as well as an extensive bibliography.

Economists consulted in preparing the report include:

Joseph Aldy, Resources for the Future
James Edmonds, Pacific Northwest National Laboratory
Richard Howarth, Dartmouth College
Bruce McCarl, Texas A&M University
Robert Mendelsohn, Yale University
William Nordhaus, Yale University
Sergey Paltsev, Massachusetts Institute of Technology
William Pizer, Resources for the Future
David Popp, Syracuse University
John Reilly, Massachusetts Institute of Technology
Roger Sedjo, Resources for the Future
Kathleen Segerson, University of Connecticut
Brent Sohngen, Ohio State University
Robert Stavins, Harvard University
Richard Tol, Economic and Social Research Institute
Martin Weitzman, Harvard University
Peter Wilcoxen, Syracuse University
Gary Yohe, Wesleyan University

Categories: climate change, cost-benefit, economists, GAO Tags: