Environmental Valuation & Cost-Benefit News

Link: http://www.pewclimate.org/docUploads/L-W-Modeling.pdf

On May 23, 2008 The Pew Center on Global Climate Change today released a new study that provides critical insights regarding economic analyses of the Lieberman-Warner Climate Security Act (S. 2191). The study analyzes six major economic modeling exercises conducted to assess costs of this legislation. The Pew Center’s analysis puts the modeling results in context to provide a clear understanding of what models can - and cannot - reveal about the costs of climate policy.

The Pew Center examines the following economic modeling analyses of the Lieberman-Warner bill to derive insights about the drivers of key results and to inform effective policies.
* Energy Information Administration
* Clean Air Task Force
* American Council for Capital Formation/National Association of Manufacturers
* Massachusetts Institute of Technology
* Environmental Protection Agency
* CRA International

Key insights drawn from these modeling analyses and outlined in the Pew Center brief include the following:

* Availability of advanced, low-carbon technology is crucial to minimizing the costs of achieving greenhouse gas reductions;
* Flexibility in the timing of greenhouse gas reductions and allowing banking and borrowing of emission allowances lowers costs;
* The more offsets available, the lower the costs;
* Energy efficiency provisions reduce costs; and
* Robust economic growth is still achieved with climate policies in place.

“Stepping back from the details, all of these modeling efforts show the importance of policies that provide flexibility - like banking and offsets - and promote advanced low-carbon technologies and efficiency,” said Pew Center President Eileen Claussen. “This study delivers critical insights and demonstrates that cost-effective approaches to address climate change can be achieved with sensible policies.”

While the models offer valuable insights, they do not tell the complete story. They reveal long-term assumptions are at best only approximations. For example, accurately predicting the availability and cost of technologies 50 years in the future is nearly impossible. The models do not fully represent the Lieberman-Warner bill, often omitting potential cost-savings provisions including certain energy efficiency inducements and the Carbon Market Efficiency Board’s role in regulating allowances. The models also fail to consider the costs of inaction, and any credible analysis finds that unabated climate change will cost far more than reasonable climate policy.

As a companion to this study, a recent Pew Center paper describes the advantages and limitations of economic models for evaluating policy options. Insights Not Numbers: The Appropriate Use of Economic Models explains that economic modeling cannot predict future events or produce precise projections of the consequences of specific policies. Instead, model results are more appropriately used to provide insights into key economic relationships, to explore the impact of alternative policy designs, and to produce ranges of results based on plausible assumptions and reliable data.

The Pew Center on Climate Change www.pewclimate.org
The Pew Center was established in May 1998 as a non-profit, non-partisan, and independent organization dedicated to providing credible information, straight answers, and innovative solutions in the effort to address global climate change. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.
Press Release dated May 21, 2008
http://www.pewclimate.org/docUploads/L-W-Modeling.pdf