United States Government Accountabilit
y
Office
GAO
Report to Congressional Requesters
CLIMATE CHANGE
Expert Opinion on the
Economics of Policy
Options to Address
Climate Change
May 2008
GAO-08-605
What the Experts Said
United States Government Accountability Office
Why GAO Obtained
Experts’ Opinions
Highlights
Accountability Integrity Reliability
Ma
y
2008
CLIMATE CHANGE
Expert Opinion on the Economics of Policy Options
to Address Climate Change
Highlights of GAO-08-605, a report to
Congressional requesters.
Elevated levels of greenhouse
gases in the atmosphere and the
resulting effects on the earth’s
climate could have significant
environmental and economic
impacts in the United States and
internationally. Potential impacts
include rising sea levels and a shift
in the intensity and frequency of
floods and storms. Proposed
responses to climate change
include adapting to the possible
impacts by planning and improving
protective infrastructure, and
reducing greenhouse gas emissions
directly through regulation or the
promotion of low-emissions
technologies. Because most U.S.
emissions stem from the
combustion of fossil fuels such as
coal, oil, and natural gas, much of
this report centers on the effect
emissions regulation could have on
the economy.
In this context, GAO was asked to
elicit the opinions of experts on (1)
actions the Congress might
consider to address climate change
and what is known about the
potential benefits, costs, and
uncertainties of these actions and
(2) the key strengths and
limitations of policies or actions to
address climate change. GAO
worked with the National Academy
of Sciences to identify a panel of
noted economists with expertise in
analyzing the economic impacts of
climate change policies and
gathered their opinions through
iterative, Web-based
questionnaires. The findings
reported here represent the views
of the 18 economists who
responded to both questionnaires.
A
ll of the panelists agreed that the Congress should consider using a market-
based mechanism to establish a price on greenhouse gas emissions, and 14 of
the 18 panelists recommended additional actions as part of a portfolio to
address climate change, such as investment in research and development of
low-emissions technologies. 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. In addition, 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 also identified general categories of benefits,
such as avoided climate change damages, and costs, such as increases in
energy prices, associated with their recommended actions. Overall the panel
rated estimates of costs as more useful than estimates of benefits for
informing congressional decision making, with some panelists citing
uncertainties associated with the future impacts of climate change as
limitations to estimating benefits. Further, 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.
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.
To view the full product, including the scope
and methodology, click on GAO-08-605.
For more information, contact John
Stephenson at (202) 512-3841 or
Contents
Letter 1
Results in Brief 7
Background 9
Despite Some Uncertainty Regarding the Potential Economic
Impact, All of the Panelists Supported Establishing a Price on
Greenhouse Gas Emissions 20
The Panelists’ Views on the Strengths and Limitations of Policy
Options Focused Primarily on the Environmental Certainty of a
Cap-and-Trade System versus the Efficiency of a Tax on
Emissions 33
Appendix I Scope and Methodology 43
Appendix II Selected Characteristics of Panelists’ Preferred
Policy Options for Addressing Climate Change 47
Appendix III Selected Questions and Expert Responses 50
Appendix IV Panel of Experts 61
Appendix V Bibliography of Selected Literature Reviewed by
GAO 62
Appendix VI GAO Contact and Staff Acknowledgments 75
Tables
Table 1: Potential Impacts of Climate Change by Sector 10
Table 2: Selected Policies, Measures, and Instruments Currently
Used by Various Nations to Address Climate Change 15
Table 3: Key Strengths and Limitations of Other Policy Options
Identified by Panelists 39
Page i GAO-08-605 Climate Change
Table 4: Selected Characteristics of Panelists’ Preferred Policy
Options for Addressing Climate Change 47
Figures
Figure 1: Potential Impacts of Climate Change by Geographic
Region 12
Figure 2: Mean Panelist Ratings of the Importance of Additional
Policy Options to Address Climate Change 24
Figure 3: Mean Panelist Ratings of the Importance of General
Categories of Potential Benefits as a Rationale for
Addressing Climate Change 26
Figure 4: Mean Panelist Ratings of the Importance of Types of
Assumptions in Integrated Assessment Models 29
Figure 5: Mean Panelist Ratings of the Importance of Categories of
Uncertainties Associated with Benefit and Cost Estimates
from Integrated Assessment Models 31
Figure 6: Mean Panelist Ratings of the Importance of Criteria in
Evaluating Policies for Addressing Climate Change 35
Figure 7: Mean Panelist Ratings of the Importance of Ways That
Revenue Generated from a Market-Based Mechanism
Could Be Distributed 38
Page ii GAO-08-605 Climate Change
Abbreviations
CCSP Climate Change Science Program
CCTP Climate Change Technology Program
DOE Department of Energy
EPA Environmental Protection Agency
EU ETS European Union Emissions Trading Scheme
IPCC Intergovernmental Panel on Climate Change
NAS National Academy of Sciences
NASA National Aeronautics and Space Administration
NOAA National Oceanic and Atmospheric Agency
UNFCCC United Nations Framework Convention on Climate
Change
USDA U. S. Department of Agriculture
This is a work of the U.S. government and is not subject to copyright protection in the
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Page iii GAO-08-605 Climate Change
United States Government Accountability Office
Washington, DC 20548
May 9, 2008
The Honorable Barbara Boxer
Chairman
Committee on Environment and Pu
blic Works
United States Senate
The Honorable Dia
nne Feinstein
United States Senate
Changes in t
he earth’s climate attributable to increased concentrations of
greenhouse gases may have significant environmental and economic
impacts in the United States and internationally.
1
Among other potential
impacts, climate change could threaten coastal areas with rising sea levels,
alter agricultural productivity, and increase the intensity and frequency of
floods and tropical storms. Furthermore, climate change has implications
for the fiscal health of the federal government, affecting federal crop and
flood insurance programs, and placing new stresses on infrastructure and
natural resources.
2
The earth’s climate system is driven by energy from the sun and is
maintained by complex interactions among the atmosphere, the oceans,
and the reflectivity of the earth’s surface, among other factors. Certain
gases in the earth’s atmosphere—such as carbon dioxide and methane—
are known as greenhouse gases because they trap energy from the sun and
prevent it from returning to space. Climate change is a long-term and
global issue because greenhouse gases disperse widely in the atmosphere
once emitted and can remain for extended periods of time. According to
the Intergovernmental Panel on Climate Change (IPCC)—an organization
within the United Nations that assesses scientific, technical, and economic
information on the effects of climate change—atmospheric concentrations
of carbon dioxide, the most common greenhouse gas, rose 35 percent
1
Major greenhouse gases include carbon dioxide (CO
2
), methane (CH
4
), nitrous oxide
(N
2
O), and synthetic gases (hydrofluorocarbons {HFCs}, perfluorocarbons {PFCs}, and
sulfur hexafluoride {SF
6
}).
2
See GAO,Climate Change: Financial Risks to Federal and Private Insurers in Coming
Decades Are Potentially Significant, GAO-07-285, Mar. 16, 2007; and Climate Change:
Agencies Should Develop Guidance for Addressing the Effects on Federal Land and Water
Resources, GAO-07-863, (Washington, D.C.: Aug. 7, 2007).
Page 1 GAO-08-605 Climate Change
between pre-industrial times and 2005.
3
The IPCC has determined that 11
of the 12 warmest years on record occurred between 1995 and 2006 and
expects that global mean temperatures will continue to rise over the next
century as a result of increased atmospheric concentrations of greenhouse
gases.
In 2006, carbon dioxide released from the burning of fossil fuels accounted
for approximately 78 percent of anthropogenic greenhouse gas emissions
in the United States. The remaining 22 percent of emissions included
carbon dioxide from nonenergy use of fossil fuels and iron and steel
production; methane from landfills, coal mines, oil and gas operations, and
agriculture; nitrous oxide from fossil fuels, fertilizers, and industrial
processes; and other gases emitted from processes such as refrigeration,
air conditioning, and semiconductor manufacturing.
4
In 2005, the United
States was the largest global emitter of carbon dioxide followed by China,
Russia, Japan, and India.
5
The United States, 190 other nations, and the European Economic
Community have ratified the United Nations Framework Convention on
Climate Change (the Framework Convention), which aims to stabilize
atmospheric greenhouse gas concentrations within a time frame sufficient
to allow ecosystems to adapt naturally to climate change, to ensure that
food production is not threatened, and to enable economic development to
proceed in a sustainable manner. Under the Kyoto Protocol of the
Framework Convention, 178 nations have agreed to reduce their
greenhouse gas emissions by at least 5 percent below 1990 levels, by 2012.
Also, in 2005, the European Union began implementing its Emissions
Trading Scheme (EU ETS), a program that limits emissions in each
member state and is intended to help states achieve their commitments
under the Kyoto Protocol. Many nations with significant greenhouse gas
emissions, including the United States, China, and India, had not
committed to binding limits on emissions through the Kyoto Protocol or
other mechanisms as of the date of this report. However, in December
3
Atmospheric concentrations of carbon dioxide increased from 280 parts per million to 379
parts per million between pre-industrial times and 2005. (See Intergovernmental Panel on
Climate Change (IPCC), 2007: The Physical Science Basis. Contribution of Working Group I
to the Fourth Assessment)
4
Environmental Protection Agency (EPA), 2008, Inventory of U.S. Greenhouse Gas
Emissions and Sinks, 1990-2006, Public Review Draft (Washington, D.C.: Apr. 18, 2008).
5
Energy Information Administration (EIA), International Energy Annual 2005.
Page 2 GAO-08-605 Climate Change
2007, the Conference of Parties, the supreme body of the Framework
Convention, announced the launch of the Bali Action Plan, a
comprehensive process that is expected to lead to a decision in 2009 on
steps for countries to take on a post-2012 framework.
Instead of adopting limits on emissions, the United States government has
addressed climate change with policies that fall into three main categories:
(1) programs targeted at enhancing the scientific understanding of climate
change, including the Climate Change Science Program (CCSP), directed
by the Assistant Secretary of Commerce for Oceans and Atmosphere; (2)
programs that support research, development, and deployment of new
technologies that could reduce emissions and improve energy efficiency,
including the Climate Change Technology Program (CCTP), led by the
Department of Energy; and (3) voluntary programs designed to encourage
private and public sector entities to curb their greenhouse gas emissions
by providing technical assistance, education, and information sharing,
including the Environmental Protection Agency’s Climate Leaders
Program.
The Congress is currently considering various proposals to further address
climate change, including actions to mitigate emissions.
6
Mitigation aims to
limit the extent of climate change, usually by decreasing greenhouse gas
emissions. One possible mitigation policy is an emissions trading program
(referred to as a cap-and-trade program). In general, under a cap-and-trade
program, such as the European Union’s program, the government would
limit the overall amount of greenhouse gas emissions from regulated
entities. These entities would need to hold allowances for their emissions,
and depending on where the regulation was enforced in the economy,
each allowance would entitle them to emit 1 ton of carbon dioxide or to
have 1 ton of carbon in the fuel they sold. The government could sell the
allowances or give them away (or some combination of the two), and
establish a market in which the regulated entities could trade the
6
In the context of the United Nation’s Framework Convention on Climate Change,
mitigation is a human intervention to reduce the sources or enhance the sinks of
greenhouse gases. Examples include using fossil fuels more efficiently for industrial
processes or electricity generation, switching to solar energy or wind power, improving the
insulation of buildings, and expanding forests and other sinks to remove greater amounts
of carbon dioxide from the atmosphere. Forests and other vegetation are considered sinks
because they remove carbon dioxide through photosynthesis.
Page 3 GAO-08-605 Climate Change
allowances.
7
For example, firms that find ways to reduce their carbon
dioxide emissions below their allowed limit could earn revenue by selling
their excess allowances to firms that emit more than their limits.
8
In this
manner the market would establish a price for a ton of carbon dioxide
emissions based on the supply and demand embodied in such trades.
Although the program would provide greater certainty that the level of
annual emissions would not increase beyond the emissions cap, the cost
of the program could vary, depending on factors such as changes in energy
prices. Currently, the United States uses a cap-and-trade program to limit
pollutants that cause acid rain emitted by electric utilities.
Another possible mitigation policy is a tax on greenhouse gas emissions. A
tax would establish a price on emissions by levying a charge on every ton
of carbon dioxide emitted, creating an economic incentive for emitters of
greenhouse gases to decrease their emissions by, for example, using fossil
fuels more efficiently. Unlike a cap-and-trade program, a tax would
provide certainty as to the cost of emitting greenhouse gas emissions, but
the precise effect of the tax in reducing emissions would depend on the
extent to which producers and consumers respond to higher prices.
9
The Congress is also considering policies that, unlike a cap-and-trade
system or a tax, are not based on establishing a market for greenhouse gas
emissions. These options include regulatory approaches, such as
standards to increase energy efficiency or the use of renewable energy,
and nonregulatory approaches, such as investment in research and
development of technologies to reduce emissions. The Congress is also
considering measures to adapt to climate change, such as developing
protective coastal infrastructure to reduce the impact of rising sea levels.
The potential benefits and costs associated with a policy, or combination
of policies, depend on factors such as their stringency, timing, and
effectiveness of stabilizing or reducing greenhouse gas concentrations.
7
In general, auctioning the allowances would enable the government to decide how to use
the revenue, and allocating the allowances for free would represent a transfer of wealth
from the government to the entities receiving the allowances.
8
In general, a firm will purchase permits when the permit price is lower than the cost to
abate emissions.
9
Establishing a price on emissions creates a price signal to fossil fuel users to cut back on
consumption.
Page 4 GAO-08-605 Climate Change
Much of the debate over the direction of U.S. policy to address climate
change has centered on the effects that further policy actions could have
on economic growth. For decades, economists have sought to inform this
debate by analyzing the potential benefits and costs of actions to address
climate change. The benefits of such actions could include avoided
damages that may result from changing temperatures. For example, many
scientists believe slowing the increase in global mean temperatures and
the related rise in sea level may limit damage to coastal areas, which are
home to the majority of the U.S. population and account for nearly one-
third of the gross domestic product.
10
On the other hand, actions to
address climate change would impose costs because most emissions stem
from the combustion of fossil fuels, which constitute the majority of the
nation’s energy supply. Thus, actions to mitigate emissions would likely
impose higher costs on producers and users of fossil fuels.
To analyze the economic impacts of different policies for addressing
climate change, economists have developed sophisticated models that
incorporate historical data on the economic effects of changes in energy
prices and assumptions about future economic and climatic conditions.
These models focus primarily on the benefits and costs of using market-
based mechanisms to impose a price on greenhouse gas emissions and
generally place a greater emphasis on analyzing the effect on market
goods and services, such as fossil fuels, that have readily available prices,
than on analyzing the effect on nonmarket goods such as ecological
impacts. Key assumptions underlying these models include the degree of
international cooperation in mitigating emissions, the rate of technological
change, the sensitivity of the climate to changes in emissions, and the
degree to which societies adapt to the impacts of climate change.
In using the models to estimate the benefits and costs associated with
controlling greenhouse gas emissions, economists have estimated the
potential economic effect of establishing a price on greenhouse gas
emissions. According to economic theory, the appropriate emissions price
should reflect the social costs that result from emissions.
11
For example, in
10
National Oceanic and Atmospheric Administration (NOAA), “Coastal Area and Marine
Resources: The Potential Consequences of Climate Variability and Change,” December
2001.
11
The appropriate price, often called the social cost of carbon, reflects the present value of
economic damages caused by an additional quantity of greenhouse gas emissions. Under an
economically optimal control policy, the price would be set at the point where the
incremental or marginal damages from global warming equal the marginal costs of
controlling emissions.
Page 5 GAO-08-605 Climate Change
a survey of the economic literature, the IPCC reported that estimates of
the damages associated with current greenhouse gas emissions—impacts
on public health, ecosystems, and industry—average about $12 per metric
ton of carbon dioxide, with a range from $3 to $95 per ton (2005 dollars).
12
The wide range of estimates primarily reflects differences in the models
used and key assumptions.
In this context, you asked us to elicit the opinions of experts in the field of
climate change economics on (1) actions the Congress might consider to
address climate change and what is known about the potential benefits,
costs, and related uncertainties of these actions and (2) the key strengths
and limitations of policies or actions to address climate change. To
respond to these objectives, we collaborated with the National Academy
of Sciences (NAS) to identify and recruit experts with experience
analyzing the economic effects of climate change policies. NAS recruited
25 experts affiliated with U.S.-based institutions who have conducted
research on the benefits, costs, or uncertainties associated with actions to
address climate change, and with in-depth experience in assessing the
economic impacts and trade-offs of climate change policies. The experts
who served on the panel represent the range of existing research on the
economics of climate change, with expertise in areas such as
environmental, natural resource, and agricultural economics, and some
have served as advisors to the United States government, including as
members of the Council of Economic Advisors under the current and
former administrations.
To address the first and second objectives, we (1) reviewed relevant
climate change academic literature and documents developed by federal
agencies and (2) met with agency officials from the Environmental
Protection Agency (EPA); the Department of Energy (DOE), including the
Energy Information Administration (EIA); the Department of Commerce,
including the National Oceanic and Atmospheric Administration (NOAA);
the United States Department of Agriculture (USDA); and the National
Aeronautics and Space Administration (NASA). To structure our questions
and gather opinions from the panelists on our objectives, we used a
modified Delphi method, an iterative and controlled feedback approach.
With two Web-based questionnaires, we first gathered opinions from the
panel on the key topics, and used their responses to develop the second
12
International Panel on Climate Change, Working Group II (2007). A metric ton is
equivalent to 1,000 kilograms, or approximately 2,204 pounds.
Page 6 GAO-08-605 Climate Change
round of questions. In the second round, panelists reacted to the issues
and topics discussed in the first round, answering primarily closed-ended
questions. We used this approach to eliminate the potential bias associated
with live group discussions, and to incorporate more panelists than a live
panel would allow. Including more panelists also enabled us to obtain the
broadest possible range of opinion. Of the 25 panelists NAS recruited to
participate, 21 agreed and were sent the first questionnaire. Nineteen
responded to the first questionnaire, and 18 responded to the second. After
the responses from the second round were compiled, the panelists were
given 2 weeks to comment on a summary of the results. In addition, we
followed up with several panelists to verify their responses and elaborate
on certain topics. The information presented in this report is primarily
from the second questionnaire and represents the views of the 18 experts
who participated in both rounds and not GAO’s (See app. I for a more
detailed description of our scope and methodology). We conducted our
work from September 2006 to May 2008.
All of the economists on the panel agreed that the Congress should
consider establishing a price on greenhouse gas emissions using a market-
based mechanism but expressed differing views on the type of mechanism
and its stringency. In addition, a majority of panelists recommended
implementing a portfolio of actions, including at least one complementary
policy action in areas such as research and development, adaptation, or
international negotiations and assistance. In terms of the mechanism for
establishing a price, 8 panelists preferred a cap-and-trade system with the
government having the ability to use a cost control mechanism (called a
safety valve) if the price of permits exceeds certain levels, 7 preferred a
tax on emissions, and 3 preferred a cap-and-trade system without the
safety valve. Despite key uncertainties associated with estimating
potential costs and benefits, 14 of the 18 panelists said they were at least
moderately certain that the benefits of their preferred portfolio of actions
would outweigh the costs, and 4 did not respond to questions on this topic.
With respect to the stringency of their recommended market-based
mechanism, 7 panelists said the price per ton of emissions should range
from less than $1 to $10, 7 said from $11 to $20, and 3 said it should exceed
$20 (2007 dollars).
13
In addition, the majority of panelists said that the price
on emissions should gradually increase over time. Further, all of the
Results in Brief
13
One panelist preferred a policy that set a price for each individual greenhouse gas as
opposed to one price for all emissions.
Page 7 GAO-08-605 Climate Change
panelists said that the price should be implemented by 2015, and that it
should apply to all sectors of the economy.
Panelists identified general categories of potential benefits and costs and
provided some quantitative estimates or cited estimates from related
studies. The panelists rated avoided climate change damages as the most
important type of benefits; these damages may include flooding from
rising sea levels and extreme weather events. Some panelists also
provided cost estimates for their preferred actions and cited key studies
underlying those estimates. Overall, the panelists said that estimates of
costs are more useful for informing congressional decision makers than
estimates of benefits, but all of the panelists that responded to the
applicable questions on this topic said that the estimates of costs and
benefits from integrated assessment models were at least somewhat
useful. The panelists identified key uncertainties that affect these
estimates, including uncertainty about the extent to which rising
temperatures could lead to abrupt changes in the climate system, the
science of climate change, and the potential economic effects of actions to
address climate change. Despite these uncertainties, 16 of the 18 panelists
agreed that the United States should limit emissions as soon as possible,
regardless of the efforts of other nations to adopt similar policies. At the
same time, the majority of the panelists said that it was at least somewhat
important to participate in international negotiations, either to facilitate
climate agreements or to enhance the credibility or influence of the United
States.
Panelists identified key strengths and weaknesses 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. Notably, the experts discussed the greater certainty of attaining
emissions targets under a cap-and-trade system versus the greater
efficiency of a tax in achieving emissions reductions at a lower cost. On
average, they rated cost-effectiveness as the most important criterion for
evaluating various policy options, and used it and other important criteria
to compare the strengths and limitations of different actions to address
climate change. Some 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 would not
exceed a certain level. However, some of the panelists also said that taxes
were more economically efficient than a cap-and-trade program because
the price of emissions would be certain and would not be susceptible to
market fluctuations that could lead to increased costs. In addition, some
panelists felt a cap could be more administratively burdensome than a tax.
Page 8 GAO-08-605 Climate Change
Nonetheless, some of the panelists that preferred a tax said that a cap-and-
trade program, especially if it included cost-minimizing components,
would be an acceptable second option to address climate change. Eight
panelists preferred a hybrid approach where the government would create
a cap-and-trade system with the option of selling additional permits if the
market price of permits exceeded a certain level, thereby minimizing risks
of adverse economic consequences. However, the emissions reductions
achieved by a hybrid program would be less certain than a standard cap-
and-trade program if the price control mechanisms came into effect. As for
distributing emissions permits under a cap-and-trade or hybrid program,
the majority of panelists favored at least partial auctioning of permits
rather than free distribution. They noted that the government could
redistribute revenue from permit auctions to offset adverse effects on
consumers or particular sectors of the economy. The panelists also
discussed the strengths and limitations of other policy options, including
research and development of technologies, adaptation to the anticipated
impacts of climate change, revising energy efficiency standards, and
reforming subsidies for fossil fuel production and other industries.
Greenhouse gases—including carbon dioxide, methane, nitrous oxide, and
other substances—trap a portion of the sun’s heat in the atmosphere and
prevent the heat from returning to space. The insulating effect, known as
the greenhouse effect, moderates atmospheric temperatures, keeping the
earth warm enough to support life. According to the Intergovernmental
Panel on Climate Change (IPCC), global atmospheric concentrations of
these greenhouse gases have increased markedly as a result of human
activities over the past 200 years, contributing to a warming of the earth’s
climate.
14
Background
The IPCC generally attributes increases in average global air and ocean
temperatures, widespread melting of snow and ice, and rising mean global
sea levels to a warming of the earth’s climate system. Furthermore,
according to the IPCC, the oceans have absorbed more than 80 percent of
the heat added to the earth’s climate system, causing seawater to expand,
thereby contributing to sea level rise. Scientists have also reported that
14
Because greenhouse gases differ in their potential to contribute to global warming, each
gas is assigned a unique weight, called a global warming potential, based on its heat-
absorbing ability relative to carbon dioxide over a fixed period. This provides a way to
convert emissions of various greenhouse gases into a common measure, called carbon
dioxide equivalent.
Page 9 GAO-08-605 Climate Change
mountain glaciers and snow cover have declined, on average, in both
hemispheres, and that widespread decreases in the sizes of glaciers and
polar ice caps, combined with losses in the ice sheets of Greenland and
Antarctica very likely contributed to a sea level rise of 0.17 meters during
the 20th century.
The effect of increases in atmospheric concentrations of greenhouse gases
and temperature on ecosystems and economic growth is expected to vary
across regions, countries, and economic sectors (see table 1).
Table 1: Potential Impacts of Climate Change by Sector
Sector Major projected impacts
Agriculture, forestry, and ecosystems
•
Increased yields in colder environments
•
Decreased yields in warmer environments
•
Increased insect outbreaks
•
Increased danger of wildfires
•
Damage to crops
•
Waterlogging of soils
•
Land degradation
•
Increased livestock deaths
•
Uprooting of trees
•
Damage to coral reefs
•
Salinization of irrigation water, estuaries, and freshwater systems
Water resources
•
Effects on some water resources, such as increased salinization of groundwater and
decreased availability of freshwater for humans and ecosystems
•
Increased water demand
•
Water quality problems
•
Adverse effects on quality of surface and groundwater
•
More widespread water scarcity
•
Power outages causing disruption of public water supply
•
Decreased freshwater availability due to saltwater intrusion
Human health
•
Reduced human mortality from decreased cold exposure
•
Increased risk of heat-related mortality
•
Increased risk of deaths, injuries, and infectious respiratory and skin diseases
•
Increased risk of food and water shortage
•
Increased risk of malnutrition
•
Increased risk of water- and food-borne diseases
•
Increased risk of deaths and injuries by drowning and floods
Page 10 GAO-08-605 Climate Change
Sector Major projected impacts
Industry, settlement, and society
•
Reduced energy demand for heating
•
Increased energy demand for cooling
•
Declining air quality in cities
•
Reduced disruption to transport due to snow, ice
•
Disruption of settlements, commerce, transport, and societies due to flooding
•
Pressures on urban and rural infrastructures
•
Water shortages for settlements, industry, and societies
•
Reduced hydropower generation potential
•
Potential for population migration
•
Disruption by flood and high winds
•
Withdrawal of risk coverage in vulnerable areas by private insurers
•
Costs of coastal protection versus costs of land use relocation
•
Potential for movement of populations and infrastructure
Source: IPCC, Working Group III, AR4, Summary for Policymakers
Page 11 GAO-08-605 Climate Change
Figure 1: Potential Impacts of Climate Change by Geographic Region
North America:
• Decreased snowpack, more winter flooding, and reduced
summer flows, exacerbating competition for already limited
water resources in western mountains
• Extended periods of high fire risk and large increases in
area burned in forest areas
• Increased aggregate yields of rain-fed agriculture, but with
variability among regions
• Increased heatwaves with greater intensity and frequency in
cities that currently e
xperience heatwaves
• Increased vulnerability to climate variability and future
climate change due to population growth and the rising value
of infrastructure in coastal areas, with current adaption
uneven and readiness for increased exposure low
Latin America:
• Gradual replacement of tropical forest by savanna in
easter
n Amazonia (by midcentury)
• Significant biodiversity loss in many areas of tropical Latin
America
• Decreased agricultural productivity, with adverse
consequences for food security in drier areas
• Increased flooding in low-lying areas and increasing sea
surface temperatures, adversely aff
ecting coral reefs and
causing shifts in the location of southeastern Pacific fish
stocks
• Decreased water availability for human consumption,
agriculture, and energy generation
• Effectiveness of adaptation efforts outweighed by the lack of
capacity building and appropriate political, institutional, and
technological frame
works
Polar regions:
• Reduced thickness and extent of glaciers and ice sheets
and changes in natural ecosystems
• Detrimental impacts on infrastructure and traditional
indigenous ways of life in the Arctic
• Beneficial impacts including reduced heating costs and
more navigable northern sea routes
• Increased vulnerability f
or specific ecosystems and habitats
in both polar regions as climate barriers to species invasions
are lowered
Small islands:
• Adverse impacts on local resources, such as fisheries,
reducing the value of these destinations for tourism
• Increased flooding, storm surge
, erosion, and other coastal
hazards, threatening vital infrastructure, settlements, and
facilities of island communities
• Substantially decreased freshwater availability
• Increased invasion by non-native species, particularly on
midlatitude islands
Polar region
boundary
Caribbean Islands
Pacific Islands
North Pacific
Ocean
Arctic Ocean
Antarctic
North Atlantic
Ocean
South Pacific
Ocean
Page 12 GAO-08-605 Climate Change
Africa:
• Extensive increases in water scarcity (by 2020)
• Severely compromised agricultural production (by 2020)
• Negative effects on local food supplies
• Projected sea-level rise will affect heavily populated
low-lying coastal areas (by 2100)
• High vulnerability to impacts due to low adaptive capability
Asia:
• Increased flooding, avalanches, and water scarcity in the
Himalayas
• Increased freshwater scarcity in Central, South, East, and
Southeast Asia (by 2050s)
• Increased r
isk of flooding in heavily populated megadeltas
in South, East, and Southeast Asia
• Increased crop yields in East and Southeast Asia will be
offset by decreased crop yield in Central and South Asia;
coupled with rapid urbanization and population g
rowth, the
risk of hunger is expected to remain very high in several
developing countries
• Increased health risks associated with flooding, droughts,
and increasing coastal water temperatures
Australia and New Zealand:
• Increased water scarcity in souther
n and eastern Australia
and New Zealand (by 2030)
• Significant biodiversity loss in ecologically rich sites such
as the Great Barrier Reef (by 2020)
• Increased risk to coastal development and population
growth due to sea-level rise and increases in the severity
and frequency of storms and coastal flooding (by 2050)
• Decreased agricultural and f
orestry productivity for much
of southern and eastern Australia and parts of eastern New
Zealand
• Longer growing seasons in western and southern New
Zealand
Europe:
• Increased risk of inland flooding, and coastal flooding and
increased coastal erosion
• Glacier retreat, reduced snow cover and winter tourism,
and e
xtensive species loss in mountainous areas (by 2080)
• Higher temperatures, increased drought, reduced water
availability and crop productivity, increased health risks, and
increased frequency of wild fires in Southern Europe
• Decreased summer precipitation, reduced water
availability, increased health risks, reduced forest
production, and increased frequency of peatland fires in
Central and Easter
n Europe
• Decreased demand for heating, increased crop yields, and
forest growth in Northern Europe outweighed by increased
frequency of winter floods and endangered ecosystems
North Pacific
Ocean
Indian Ocean Islands
Arctic Ocean
Antarctic
South Atlantic
Ocean
Arctic Ocean
Sources: GAO and Map Resources based on IPCC analysis.
Page 13 GAO-08-605 Climate Change
For example, small island nations are particularly at risk because of their
vulnerability to sea level rise, poor coastal infrastructure, and economies
that rely heavily on coastal fishing and tourism. Alternatively, while
certain areas of the United States may be adversely affected by rising sea
levels, its diverse economy, significant resources, and established
infrastructure may help moderate the negative effects associated with
climate change. Figure 1 shows a selection of projected impacts from
climate change on different regions, assuming that greenhouse gas
emissions and concentrations continue to increase at current rates.
According to the IPCC, in 2004, developed countries, including the United
States, constituted 20 percent of global population, but were responsible
for nearly half of global greenhouse gas emissions.
15
However, in the
absence of mitigation policies, the IPCC projects that between 2000 and
2030, two-thirds to three-quarters of the projected increase in global
carbon dioxide emissions will occur in developing countries.
16
Mitigating Greenhouse Gas
Emissions
Many developed countries have begun to mitigate or reduce greenhouse
gas emissions by adopting policies such as carbon taxes, cap-and-trade
programs, energy efficiency standards, financial incentives (e.g., subsidies
or tax credits), voluntary agreements, education campaigns, and research,
development, and deployment of advanced technologies.
17
For example,
the European Union Emission Trading Scheme (EU ETS) is a cap-and-
trade system in which energy-intensive industries in the European Union
buy or sell emission allowances to help meet member states’ commitments
under the Kyoto Protocol. The EU ETS covers over 11,000 energy-
intensive installations, such as oil refineries and steel plants, in 25 member
15
IPCC, 2007: Introduction. In: Climate Change 2007: Mitigation, Contribution of Working
Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate
Change (B. Metz, O.R. Davidson, P.R. Bosch, R. Dave, L.A. Meyer [eds.]), Cambridge
University Press, Cambridge, United Kingdom.
16
IPCC, 2007: Introduction. In: Climate Change 2007: Mitigation, Contribution of Working
Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate
Change (B. Metz, O.R. Davidson, P.R. Bosch, R. Dave, L.A. Meyer [eds.]), Cambridge
University Press, Cambridge, United Kingdom.
17
The IPCC defines mitigation as technological change and substitution that reduce
resource inputs, such as energy use, and emissions per unit of output. Although several
social, economic, and technological policies would produce an emissions reduction, with
respect to climate change, mitigation means implementing policies to reduce greenhouse
gas emissions and enhance greenhouse gas sinks.
Page 14 GAO-08-605 Climate Change
countries and covering nearly half of Europe’s carbon dioxide emissions.
Governments may also use a portfolio of policies; for example, a cap-and-
trade system may be pursued in combination with energy efficiency
standards and financial incentives for certain sectors. Table 2 shows
selected policies and instruments that have been shown to be
environmentally effective at a national level.
Table 2: Selected Policies, Measures, and Instruments Currently Used by Various Nations to Address Climate Change
Sector Policies, measures, and instruments
Energy Supply
•
Reduction of fossil fuel subsidies
•
Taxes or carbon charges on fossil fuels
•
Incentives for renewable energy
•
Public research, development, and deployment of low-emission technologies
Transportation
•
Mandatory fuel economy standards, biofuel blending, and CO
2
standards for road transport
•
Taxes on vehicle purchase, registration, and use, and on motor fuels, road and parking pricing
•
Land use regulations and infrastructure planning
•
Investment in public transport facilities and nonmotorized forms of transport
•
Public research, development, and deployment investment in low-emission technologies
Buildings
•
Appliance standards and labeling
•
Building codes and certification
•
Demand-side management programs to incentivize customers to purchase energy-efficient products
•
Public sector leadership programs, including procurement requirements for governments
•
Incentives for energy service companies
•
Public research, development, and deployment investment in low-emission technologies
Industry
•
Performance standards
•
Subsidies, tax credits
•
Tradable permits
•
Voluntary agreements
•
Public research, development, and deployment investment in low-emission technologies
Agriculture
•
Financial incentives and regulations for improved land management, maintaining soil carbon content,
efficient use of fertilizers and irrigation
•
Public research, development, and deployment investment in low-emission technologies
Forestry
•
Financial incentives (national and international) to increase forest area, to reduce deforestation, and to
maintain and manage forests
•
Land use regulation and enforcement
•
Public research, development, and deployment investment in low-emission technologies
Waste management
•
Financial incentives for improved waste and wastewater management
•
Renewable energy incentives or obligations
•
Waste management regulations
•
Public research, development, and deployment investment in low emission technologies
Source: IPCC, Working Group III, AR4, Summary for Policymakers.
Page 15 GAO-08-605 Climate Change
In addition, carbon capture and storage can supplement other climate
change mitigation policies. Carbon capture and storage involves
separating and storing carbon dioxide from an industrial or energy-related
source, thereby preventing carbon dioxide emissions into the atmosphere.
Carbon capture and storage is most commonly used to enhance oil and gas
recovery in depleted fields. Efforts to capture carbon dioxide from power
generation or industrial processes are currently the main focus of research
and development of the technology. This process has the potential to
reduce emissions, but its widespread use may be limited by several
barriers, including technological feasibility, costs, regulatory issues, and
environmental concerns.
Another option is to allow for carbon offsets, which is a way for
consumers and producers to compensate for greenhouse gas emissions
occurring in one location by reducing or avoiding emissions somewhere
else. For example, a manufacturing facility in the United States could
compensate for its emissions by purchasing carbon offsets from a tree-
planting project in South America. Carbon offsets are traded in
compliance markets, to satisfy requirements to limit emissions, and in
voluntary markets, where emissions reductions are not required but may
serve other purposes. For example, carbon offsets serve as a mechanism
for complying with the emissions reduction requirements of the EU ETS.
Under this scheme, certain regulated entities may choose to comply with
emissions limits by purchasing offsets rather than by reducing their own
emissions.
Adaptation Policies to
Reduce Vulnerability to
Climate Change
In addition to mitigating greenhouse gas emissions, policies to adapt to
climate change could help reduce the vulnerability of countries and
regions to potentially adverse impacts. For example, raising river or
coastal dikes could protect coastal communities and resources from sea
level rise. The vulnerability of a country or region depends on both on the
susceptibility of a political, economic, or natural system to the adverse
effects of climate change and the capacity of a society to adjust to the
expected change. For example, less developed economies may face
difficulty adapting to climate change because of poor infrastructure,
poverty, and resource constraints. Adaptation may be viewed as a risk-
management strategy for protecting vulnerable countries, sectors, and
communities that might be affected by changes in the climate and related
impacts.
In December 2007, members of the Conference of the Parties to the
Framework Convention agreed to launch a comprehensive process that
Page 16 GAO-08-605 Climate Change
will lead to the adoption of a decision in 2009 on next steps for countries
to take on climate change. This process, called the Bali Action Plan,
includes provisions that require signatories, including the United States, to
undertake efforts to enhance international cooperation on adaptation,
such as vulnerability assessments; capacity building; risk management;
and reduction strategies; and the integration of adaptation into planning
decisions.
18
Estimating the Potential
Benefits and Costs of
Actions to Address Climate
Change
Economists and other researchers have developed integrated assessment
models that utilize economic and climate and other environmental data to
assess the economic consequences associated with different policies for
addressing climate change. These models vary in structure and scope, but
generally include historical data on the U.S. and international economies,
emissions and atmospheric concentrations of greenhouse gases, and
global temperature. Typically, economists use the models to estimate the
economic consequences of policy actions, by comparing the present
values of the economic costs of an action such as tax or cap and trade and
the future benefits it would be expected to generate, relative to a business-
as-usual emissions projection (for example, no significant reductions in
greenhouse gas emissions). In judging whether a policy action would be
preferable, economists evaluate policies using criteria such as (1)
economic efficiency, where the action maximizes potential net benefits
(total benefits minus total costs), compared to business as usual and (2)
cost-effectiveness, where the action achieves the chosen policy objective,
such as an emissions reduction target, at least cost.
In general, the economic costs that society would incur from taking action
to address climate change will begin to occur immediately, while the
economic and environmental benefits will mainly occur decades in the
future as atmospheric concentrations of greenhouse gases and global
temperatures stabilize. The economic costs of taking action represent the
value of the goods and services that society would forgo to allocate
resources to the emissions control policy, including compliance
expenditures, administration and enforcement costs, and other costs that
the action might impose on the economy (for example, as a result of
higher prices). For example, because the energy sector and energy-
intensive industries generate substantial emissions of greenhouse gases, a
significant component of the potential cost associated with actions to
18
UNFCCC, Bali Action Plan, December 2007.
Page 17 GAO-08-605 Climate Change
address climate change relates to the impacts of changes in energy prices.
The economic costs of reducing emissions to stabilize atmospheric
greenhouse gas concentrations will increase as the stringency of emissions
reduction goals increase, and correspondingly, as the stabilization goal
decreases.
The potential economic benefits of policies to address climate change
generally consist of the effects of stabilizing or reducing the atmospheric
concentration of greenhouse gases and global temperature on human
welfare. Typically, benefits are measured in terms of the damages that
would be averted if an action were taken to address climate change. For
example, under a business-as-usual scenario, researchers project that
further increases in atmospheric concentrations of greenhouse gases and
global temperature could reduce agricultural productivity in certain parts
of the world, increase the incidence of diseases in certain climates, and
reduce the environmental goods and services provided by some
ecosystems. In addition, researchers have estimated that limiting
greenhouse gas emissions and slowing the increase in atmospheric
concentrations and global temperature would avoid some damages.
Estimating the potential benefits associated with actions to address
climate change, however, can pose challenges, partly because of
uncertainty about the magnitude of climate impacts and the resulting
effect on human welfare. In particular, scientists face challenges
estimating the effects of climate change at the regional and local level. In
addition, rising global temperature could involve unexpectedly abrupt
changes in the climate, which would be more costly than if changes are
more moderate. According to NAS, global warming and other human
alterations of the earth’s climate system may increase the possibility of
large and abrupt regional or global climatic events. However, NAS
concluded that because the abrupt climate changes of the past are not yet
fully explained, future abrupt changes cannot be predicted with any
confidence and climate surprises are to be expected.
19
In addition, partly
because many of the environmental goods and services expected to be
affected by climate change are generally not bought and sold in markets, it
19
National Research Council: Abrupt Climate Change: Inevitable Surprises (Washington,
D.C.: 2002).
Page 18 GAO-08-605 Climate Change
is difficult to develop reliable estimates of the value associated with the
damages expected from climate change.
20
Furthermore, estimating the economic consequences of various actions to
address climate change involves consideration of the fact that the benefits
and costs will occur in different time periods and should be expressed in
comparable present value terms. For example, because greenhouse gases
accumulate in the atmosphere over very long periods of time, the effect of
current actions to stabilize concentrations and global temperature might
take decades to manifest themselves. As a result, the future benefits and
costs of actions to address climate change are typically discounted (by
using a discount or interest rate) to estimate their present value. In
general, discounting is used to reflect the extent to which individuals trade
off current for future consumption. Nonetheless, because discounting
generally attaches a lower weight to future impacts compared to near-term
impacts, the choice of the discount rate is an important factor in assessing
the economic consequences of actions to address climate change.
21
Moreover, although the cost of any U.S. action to address climate change
will be primarily borne by U.S. producers and consumers, the economic
benefits associated with the action would also accrue to other countries
that face greater vulnerability to climate change. According to the IPCC,
the global distribution of climate change impacts varies throughout the
world and nonclimate stresses such as poverty and food insecurity can
increase a country’s vulnerability to climate change by reducing its
resilience and capacity to adapt. For example, the IPCC estimated that
Africa could face increased risk of water scarcity and reduced food
security.
22
However, because African nations account for a negligible share
20
In general, benefits and costs are measured in terms of a common metric: dollars.
Benefits are monetized by estimating the amount that individuals would be willing to pay
for the benefit (or the amount they would be willing to accept to forgo the benefit) based
on market transactions. In cases where the benefit is not traded in a market (e.g.,
ecosystem services), economists use methods such as contingent valuation surveys to elicit
the amount that individuals would be willing to pay for the benefit.
21
A recent report sponsored by the British government (i.e., the Stern Review) concluded
that relatively aggressive emissions reductions by the global community were economically
justified. Several economists criticized its discounting approach. See appendix V for
literature citations on this topic.
22
IPCC, 2007: Summary for Policymakers. In Climate Change 2007: Impacts, Adaptation
and Vulnerability. Contribution of Working Group II to the Fourth Assessment Report of
the Intergovernmental Panel on Climate Change, M. L. Parry, O. F. Conziani, J. P.
Palutikof, P. J. van der Linden, and C. E. Hanson, Eds., Cambridge University Press,
Cambridge, United Kingdom, 7-22.
Page 19 GAO-08-605 Climate Change
of total greenhouse gas emissions, it is expected that they will bear a much
smaller portion of the overall costs or responsibility for greenhouse gas
mitigation.
The eight climate change mitigation bills currently under consideration by
the Congress provide an overview of the potential for simultaneously
pursuing a portfolio of actions. All eight bills include provisions for a cap-
and-trade system in combination with initiatives to promote the
development and adoption of low-carbon technologies.
23
Also, three bills
would require that a specific amount of electricity be generated by
renewable energy—generally called a Renewable Portfolio Standard—
including wind and solar energy, and energy efficiency performance
standards. Five bills would apply the emissions caps to specific sectors of
the economy, such as electricity, transportation, and industry, while caps
under the other three would not be limited to specific economic sectors.
All of the panelists agreed that the Congress should consider establishing a
price on greenhouse gas emissions using a market-based mechanism, but
they expressed differing views on the type of mechanism and its
stringency. In addition, 14 of the 18 panelists were at least moderately
certain that the benefits of their suggested portfolio of actions would
outweigh the costs.
24
Most of the panelists identified either a tax on
emissions or a cap-and-trade program with a safety valve as the preferred
mechanism to establish a price on emissions, and the majority believed a
portfolio of additional actions to address climate change could
complement the market-based mechanism. Some panelists also identified
general categories of benefits and costs associated with their
recommended actions, and rated the usefulness of benefit and cost
estimates derived from integrated assessment models. Overall the panel
rated estimates of costs as more useful than estimates of benefits for
informing congressional decision making, with some panelists citing
uncertainties associated with the future impacts of climate change as a
limitation to estimating benefits. Finally, while some panelists said that the
United States should proceed cautiously if it acts unilaterally, the majority
of panelists agreed that it should establish a price on greenhouse gas
Climate Change Policies
Currently under
Consideration by the
Congress
Despite Some
Uncertainty
Regarding the
Potential Economic
Impact, All of the
Panelists Supported
Establishing a Price
on Greenhouse Gas
Emissions
23
S. 280 (Lieberman), S. 309 (Sanders), S. 317 (Feinstein), S. 485 (Kerry), S. 1766
(Bingaman), S. 2191 (Lieberman/Warner), H.R. 620 (Olver), and H.R. 1590 (Waxman).
24
The remaining 4 panelists did not provide a response.
Page 20 GAO-08-605 Climate Change
emissions as soon as possible regardless of the extent to which other
countries adopt similar policies.
All of the Panelists Agreed
that the Congress Should
Consider Establishing a
Price On Greenhouse Gas
Emissions, and the
Majority Recommended
Complementary Policies
All of the panelists agreed that the Congress should consider a market-
based mechanism to establish a price on greenhouse gas emissions and
supported implementation of the policy by 2015. Opinions varied on
whether the Congress should implement a cap-and-trade system or a tax to
control greenhouse gas emissions, with eight panelists preferring a cap-
and-trade program with a safety valve (sometimes referred to as a hybrid
system), seven preferring a tax, and three preferring a cap-and-trade
program. All of the panelists agreed that the policy should target all
sectors of the economy, and the majority believed that it should include all
greenhouse gases. For example, one panelist stated that by establishing a
price on emissions from all sources in the United States with no
exceptions, the policy would equilibrate the marginal cost of reducing
emissions across all sources, making it economically efficient.
The panelists varied in their views on the stringency of the market-based
regulatory mechanism that they supported to place a price on greenhouse
gas emissions.
25
For example, in proposing an initial price on emissions,
seven panelists said it should range from less than $1 to $10, six said from
$11 to $20, and four said it should be greater than $20 (2007 dollars per
metric ton of carbon dioxide equivalent).
26
In addition, while most
panelists said the price should increase over time, they varied in their
views on the preferred rate of increase. For example, some panelists
provided estimates ranging from 2 percent to 5 percent per year adjusted
for inflation, while another panelist said more generally that it should be
reevaluated periodically (for example, every 5 years) and rise as marginal
damages of climate change rise. Some panelists noted the importance of a
long-term commitment to establish a price on emissions and the flexibility
to adjust the price and rate of increase as new information becomes
available. For example, one panelist stated that certainty in setting
emissions reductions goals was necessary for firms that would have to
make substantial investments in new emissions reduction technologies.
25
In specifying an initial price for a cap-and-trade or hybrid program, the emissions cap
could be set at a level that would be consistent with the initial price (i.e., the targeted
permit price).
26
One panelist preferred a policy that set a price for each individual greenhouse gas as
opposed to one price for all emissions.
Page 21 GAO-08-605 Climate Change
Another panelist added that while the program should run into the distant
future, it should include an explicit feature to revise taxes or emissions
targets based on near-term mitigation experience, new research on climate
change science and impacts, and actions by other countries.
Under a hybrid approach, the government would establish a cap-and-trade
system with a safety valve, a mechanism under which the government
would sell additional permits if the market price exceeded a
predetermined level, which would represent the maximum permit price
and thus an upper limit on control costs. A safety valve price would be
established, which would represent the maximum permit price and thus an
upper limit on control costs. Panelists preferring a hybrid policy varied in
their recommendations for an initial safety valve price, with five preferring
a safety valve price identical or close to their targeted initial market price
for greenhouse gas emissions and two recommending a price moderately
or well above their recommended market price (see app. II for additional
information on this topic). For example, a panelist recommending a
targeted initial market price of $0.55 per metric ton of emissions (in
carbon dioxide equivalent) recommended an identical safety valve price,
adding that the price should not be much higher than the targeted
marginal cost of reducing emissions. Another panelist recommending an
initial market price between $11 and $20 said that the safety valve should
depend on the stringency of the policy. When providing an example, the
panelist added that if the initial market price per metric ton of emissions
was $20, then the safety valve should be set three to four times above the
initial price of emissions, or between $60 and $80 (See app. II for
additional information on this topic).
In addition, seven of the eight panelists that prefer a hybrid policy believe
that the price of the safety valve should increase over time, and the
majority of panelists said that the safety valve should be reevaluated
periodically based on new information. For example, one panelist said that
the safety valve price should increase by 2.5 percent plus inflation
annually, and that the government should reevaluate the stringency of the
policy every 5 to 10 years based on new information. Another panelist said
that the safety valve provision could be abandoned altogether after a
periodic review of the adequacy of the policy and its costs.
Overall, eight of the panelists said that a market-based mechanism should
be imposed “upstream,” where fossil fuels first enter the economy, four
preferred a “downstream” mechanism that regulated direct and indirect
emitters, and five preferred a mechanism with both upstream and
downstream components. An upstream system would require fossil fuel
Page 22 GAO-08-605 Climate Change
producers, such as extractors and processors, and importers, to pay a tax
or to hold permits based on the carbon content of the fuels. Alternatively,
a downstream system would regulate sources such as electric utilities that
combust fossil fuels and emit greenhouse gases. While environmental
effectiveness would likely be the same under either approach, one panelist
said that an upstream policy would have lower administrative costs when
compared to a downstream system partly because it involves a much more
manageable set of firms. Of the panelists who said they preferred a
combination of upstream and downstream provisions, three preferred a
policy that had downstream provisions for carbon capture and storage
from utilities or other processes that remove carbon from the atmosphere.
See appendix II for additional information on experts’ preferred design for
a market-based policy.
In the second round questionnaire, we asked panelists to rate the
importance of complementary actions to address climate change that had
been recommended in the first round. We also asked panelists to identify
their recommended portfolio of actions for the Congress to consider.
When rating the importance of recommended actions, the panelists gave
the highest average ratings to funding of research, development, and
deployment of zero-carbon and low-carbon technologies, and participation
in international negotiations (see fig. 2 and app. III for more detail). For
example, recognizing that the private sector may not invest in some
technologies, one panelist recommended public investment to accelerate
development of carbon capture and storage from electricity generation.
This panelist also advocated expanded research into climate change
adaptation in the southern United States and in developing countries for
agriculture, forestry, and fisheries, emphasizing the importance of
preparing for inevitable climate impacts. Another panelist recommended
that the United States engage in international negotiations to make similar
emissions reductions commitments, and added that the United States
should consider helping other countries meet their targets as a part of
international aid.
Page 23 GAO-08-605 Climate Change
Figure 2: Mean Panelist Ratings of the Importance of Additional Policy Options to Address Climate Change
0
1
2
3
4
5
Levying a graduated tax on cars and light trucks
(including sports utility vehicles), based on
fuel economy
Funding R&D on domestic and international public
health impacts that could arise as a result of climate
change
Funding private sector R&D to achieve cost-effective
emission reductions in developing countries
Developing or revising technology efficiency standards
(for fuels or energy use)
Funding efforts to adapt to impacts of climate change
by reforming agricultural subsidy programs, land use
practices, flood control, etc.
Reforming subsidies f
or alternative fuels or energy
efficient technologies
Providing international assistance to developing
countries
a
Creating an independent oversight board to establish,
monitor, and revise the mechanism for controlling
greenhouse gases (tax or cap and trade)
Funding research and development (R&D) and/or
deployment of low- or zero-carbon technologies
Participating in international negotiations to facilitate
participation in climate agreements or to enhance
U.S. credibility/influence
Policy options
Mean response on importance scale
Source: GAO analysis.
1 Not at all important
2 Somewhat important
3 Moderately important
4 Quite important
5 Extremely important
4.47
3.44
3.31
3.22
3.18
3.17
2.71
2.44
2.33
2.28
Note: Total responses for each question may range from 15 to 18. See appendix III for additional
details.
a
Providing international assistance would include compensation for climate change impacts or
assistance deploying low-carbon technologies.
Page 24 GAO-08-605 Climate Change
When recommending a portfolio of policy options for the Congress to
consider, 14 of the 18 panelists identified actions to address climate
change in addition to placing a price on greenhouse gas emissions (see
app II, table 4, for more detail). Of the 14 holding this view, 10 said
research and development in low- or zero-carbon technologies or research
in the basic science of climate change should be part of the portfolio, 7
said international negotiations or assistance to developing countries
should be included, and 6 said adaptation should factor into a portfolio of
actions (see app. II, table 4, for more detail). When asked how certain they
were that their recommended portfolio of actions to address climate
change were economically justified, 14 of the 18 panelists were at least
moderately certain that the benefits of their suggested actions would
outweigh the costs. The remaining 4 panelists did not know or did not
provide a response to this question.
Panelists Described the
Potential Benefits and
Costs of Actions to
Address Climate Change
In the first questionnaire, we asked panelists to identify potential
categories of costs and benefits associated with actions to address climate
change. In the second questionnaire, we asked them to rate the
importance of categories of benefits as a rationale for addressing climate
change.
27
On average, panelists rated avoiding damages such as those from
flooding, impacts on sensitive ecosystems, public health, and species loss
as the most important category of potential benefits (see fig. 3 and app. III
for more detail). In addition, panelists rated reducing risk of extreme or
irreversible climate events as the second most important category of
potential benefits. For example, one panelist discussed the benefits of
reducing the probability of abrupt or catastrophic climate events such as
dramatic sea level rise by stabilizing atmospheric concentrations of
greenhouse gases. Another noted the importance of avoiding damages by
reducing the risks of vulnerability to water scarcity, hunger, or the
frequency of storm events.
27
Several noted that some categories of benefits, such as establishing a price signal, are not
benefits per se because they are not the result of reducing emissions. Nonetheless, because
these categories were identified by other panelists as benefits of actions to address climate
change, we asked all the panelists to rate their importance.
Page 25 GAO-08-605 Climate Change
Figure 3: Mean Panelist Ratings of the Importance of General Categories of Potential Benefits as a Rationale for Addressing
Climate Change
0
1
2
3
4
5
Reducing risk of international conflict over
natural resources and territory
Development, deployment, and, more generally, creating
incentives for businesses and consumers to invest
in low- or zero-carbon technologies
Inducing investment in developing countries
Development of a regulatory system
for greenhouse gas emissions
Facilitation of international cooperation
on climate change
Establishing a price signal to influence
market or individual behavior
Reducing risk or the likelihood of extreme
events associated with climate change
Avoided climate change damages
a
Benefits
Mean response on importance scale
Source: GAO analysis.
1 Not at all important
2 Somewhat important
3 Moderately important
4 Quite important
5 Extremely important
4.24
4.06
3.94
3.75
3.38
2.73
2.69
2.63
Note: Total responses for each question may range from 15 to 18. See appendix III for additional
details.
a
Avoided climate change damages includes flooding, extreme weather events, crop damage, impacts
on sensitive ecosystems, public health, and species loss.
The panelists also rated establishing a price signal to influence market or
individual behavior and facilitating international cooperation on climate
change as an important category of benefits that could serve as a rationale
for actions to address climate change. For example, one panelist stated
that the United States needs an unavoidable price signal to fully harness
the innovativeness of the U.S. industrial and scientific communities and to
Page 26 GAO-08-605 Climate Change
provide incentives to reduce emissions. Another panelist stated that a
modest near-term market-based policy could provide an opportunity to
learn about the effectiveness of an emissions tax or cap-and-trade
program, and stimulate research to inform the stringency of future
policies.
In the first questionnaire, some panelists presented estimates of the costs
that would be associated with their proposed actions to address climate
change. Panelists’ estimates of the impacts on social welfare, including the
effects on economic growth, varied depending on the type and stringency
of the policy recommended. Some panelists cited their own research and
other academic studies, as well as several assessment reports by domestic
and international governmental entities, as credible estimates of the
economic costs associated with their proposed actions, but some noted
that policy choice and stringency can have a large impact on the cost
estimates. For example, one panelist cited a recent modeling effort by the
U.S. Climate Change Science Program (CCSP) that projected that by 2060,
gross world product (GWP) would decline by between 0 and 6.7 percent
per year under emissions reduction scenarios that achieved different
levels of atmospheric stabilization of greenhouse gases.
28
However,
another panelist stated that welfare cost estimates from the study could be
reduced by as much as 50 percent by incorporating certain policy features
such as carbon offsets into the study’s policy scenario. Further, another
panelist added that it is difficult to provide a comprehensive list of
potential costs given the breadth of possible policy scenarios.
Some panelists also commented on the effect of their suggested actions on
energy prices. For example, one panelist said that a mandatory emissions
reduction program that establishes a price around $20 per ton of carbon
dioxide (2005 dollars) would increase gasoline prices by approximately 20
cents per gallon and residential electricity prices by approximately 1 cent
per kilowatt hour above business as usual estimates. Another expert
estimated that a $20 price per ton of carbon dioxide equivalent would
result in a 10 percent increase in consumer energy prices. Both experts
cited a recent study by the Energy Information Administration on energy
market impacts of alternative greenhouse gas reduction policies to
support their estimates.
28
CCSP cited (1) the amount that emissions must be reduced to achieve an emissions path
to stabilization, and (2) the technologies that are available to facilitate changes in the
economy as reasons for the difference in stabilization costs between models.
Page 27 GAO-08-605 Climate Change
Finally, in responding to our first questionnaire, panelists were asked to
identify key assumptions that they made in describing the estimates of the
benefits and costs of their proposed actions to address climate change. In
the second questionnaire, the panelists rated the importance of the
assumptions in terms of affecting the benefits and costs estimates
generated by integrated assessment models (see app. III for more detail).
Figure 4 illustrates the opinion of panelists on the importance of various
assumptions made in developing estimates using integrated assessment
models. Assumptions that panelists identified as the most important were
the real discount rate (interest rate used for discounting, adjusted for
inflation) for assessing the benefits and costs of climate change, and the
inclusion of all economic sectors in policies to address climate change.
With respect to discounting future benefits and costs, we asked panelists
to identify a reasonable estimate for the discount rate. Fifteen panelists
responded with estimates ranging from 0 to 5 percent.
Page 28 GAO-08-605 Climate Change
Figure 4: Mean Panelist Ratings of the Importance of Types of Assumptions in Integrated Assessment Models
0
1
2
3
4
5
Ancillary public health benefits
Efficient use of revenue by reducing distortionary taxes
Baseline adaptation
Baseline population growth
Coverage across greenhouse gases
Price elasticities
Energy price projections
Likelihood of abrupt change or extreme events
Rate of technological change
Baseline energy use
Climate sensitivity
b
Degree of international participation
a
Baseline economic growth
Inclusion of all economic sectors
Real discount rate for assessing benefits and
costs of addressing climate change
Assumptions
Mean response on importance scale
Source: GAO analysis.
1 Not at all important
2 Somewhat important
3 Moderately important
4 Quite important
5 Extremely important
4.41
4.18
4.06
4.06
4.06
4.00
3.88
3.76
3.59
3.56
3.53
3.35
3.24
3.06
2.76
Note: Total responses for each question may range from 15 to 18. See appendix III for additional
details.
Page 29 GAO-08-605 Climate Change
a
Degree of international participation means how quickly and to what extent high-emitting nations
implement an emissions reduction policy.
b
Climate sensitivity is the change in global mean temperature that results when the climate system
attains a new equilibrium as the result of a doubling in the atmospheric carbon dioxide concentration.
Panelists Rated Estimates
of Costs of Actions to
Address Climate Change as
More Useful than
Estimates of Benefits,
Citing Uncertainties
Associated with Future
Impacts
Citing uncertainties associated with the potential future impacts of climate
change, and the difficulties of estimating their economic impacts, panelists
rated cost estimates from integrated assessment models as more useful for
informing congressional decision making than benefit estimates. While
panelists identified challenges in estimating costs such as predicting future
technological development and additional costs associated with inefficient
policy designs, 10 panelists stated that the estimates of costs were quite or
extremely useful, whereas the majority of panelists said that estimates of
benefits were only somewhat or moderately useful. However, all of the
panelists that responded to the applicable questions on this topic said that
the estimates of costs and benefits from integrated assessment models
were at least somewhat useful. Panelists provided a number of rationales
for their opinions on integrated assessment models. For example, one
panelist said that costs were easier to estimate primarily because
economists have historical data that can be used to model the effect of
changes in energy prices. Conversely, one panelist stated that the benefits
of emissions mitigation are poorly understood because they are based on a
limited understanding about the climate system. Another panelist added
that even though researchers have put substantial effort into quantifying
the avoided damages of actions to address climate change, they are still
highly speculative.
When asked to rate the relative importance of uncertainties that may
affect the estimated benefits and costs in integrated assessment models
identified in the first questionnaire, on average, the panelists rated
thresholds and abrupt changes in the climate system as the most
important uncertainty, followed by the science of climate change, and the
economic effect of actions to address climate change (see fig. 5 and app.
III for more detail).
29
Additionally, the panelists identified how society will
adapt to climate change as an important uncertainty affecting benefit and
cost estimates. When asked how to best address risk and uncertainty in
economic assessments of climate change policies, two panelists said it
was important to provide additional information on uncertainties
29
The science of climate change refers to knowledge about the effect on the climate of
factors such as greenhouse gas concentrations, clouds, and the carbon cycle.
Page 30 GAO-08-605 Climate Change
associated with low-probability, high-impact climate change events. For
example, one panelist said that the limited treatment of low-probability
high-impact uncertainty associated with high temperature changes is the
biggest unsolved problem driving a complete economic analysis. Other
panelists said it was important to provide decision makers with
descriptions of the risks of climate change, including distributions of
probable impact scenarios under various policy approaches. For example,
one panelist said that ideally, economic assessments should fully
characterize uncertainties by providing decision makers with probability
distributions over prospective outcomes.
Figure 5: Mean Panelist Ratings of the Importance of Categories of Uncertainties Associated with Benefit and Cost Estimates
from Integrated Assessment Models
0
1
2
3
4
5
Elasticity of the marginal utility of consumption
b
Pure rate of time preference
a
How people will adapt to climate change
Discounting (in general)
Economic effect of actions to address climate change
Science of climate change
Thresholds and abrupt changes in climate system
Uncertainties
Mean response on importance scale
Source: GAO analysis.
1 Not at all important
2 Somewhat important
3 Moderately important
4 Quite important
5 Extremely important
4.11
4.00
3.78
3.61
3.56
3.50
3.00
Note: Total responses for each question may range from 15 to 18. See appendix III for additional
details.
Page 31 GAO-08-605 Climate Change
a
Pure rate of time preference reflects the relative weight assigned to the welfare of different
generations over time.
b
Elasticity of the marginal utility of consumption is the percentage change in welfare derived from a
percentage change in consumption or income.
Despite the challenges associated with estimating benefits and costs using
integrated assessment models, several panelists cited them as valuable
tools for informing judgment on climate change policy. For example, one
panelist said that integrated assessment models are the only tools that can
assemble all of the factors surrounding the climate issue to assess
potential emissions mitigation and adaptation strategies. When asked to
identify steps that the Congress could take to help economists and other
researchers address the most important uncertainties, most of the
panelists that responded expressed the need for continued funding of
research to improve understanding of the science and economics of
climate change.
The Majority of Panelists
Said That the United States
Should Begin to Control
Emissions Soon,
Regardless of International
Participation
The majority of panelists said that if the United States acts unilaterally to
establish a price on greenhouse gas emissions, they would not change
their conclusions that their recommended actions were economically
justified. While some panelists said that the United States should proceed
cautiously if it acts unilaterally, 16 of 18 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. Nonetheless, the majority of the panelists said that it was
important for the United States to participate in international negotiations
to facilitate climate agreements or to enhance the credibility or influence
of the United States. In addition, some panelists noted the importance of
participation by other countries, recommending that the United States act
conservatively in the absence of action by other high-emitting nations. For
example, one panelist said that the U.S. government should also engage in
international negotiations to ensure other nations make a similar
commitment. In emphasizing the importance of global participation, the
panelist said that without it, a U.S. emissions reduction program would be
undercut.
When asked whether U.S. action to establish a price on greenhouse gas
emissions in the absence of action by other high-emitting nations (e.g.,
India, China, Brazil) would have a negative or positive effect on the ability
of U.S. companies to compete with similar companies in other countries,
10 out of 18 panelists said the effect would be negative, 7 said it would be
neither positive or negative, and 1 did not know or was not sure.
Page 32 GAO-08-605 Climate Change
Moreover, several panelists said that energy-intensive industries such as
chemicals and metals, as well as the coal sector, would experience the
most negative effects if the United States established a price on
greenhouse gases in the absence of such actions in other high-emitting
nations.
On the other hand, one panelist remarked that the major impacts would
not necessarily come from international trade, adding that the main effect
of U.S. action would be on electricity production, which is not generally
traded internationally. Another panelist said that competitiveness is only
one factor if the United States takes action to mitigate greenhouse gas
emissions and the other key countries do not. The most important factor,
this panelist noted, is that in the absence of action by other high-emitters a
large investment in abatement of emissions by the United States will be
wasted because it will not achieve a corresponding improvement in the
environment.
The panel provided their opinions on the strengths and limitations
associated with various policy options to address climate change, and
focused on the key trade-offs between a tax on emissions or a cap-and-
trade system. Panelists first identified criteria for evaluating policy options
and then discussed the strengths and limitations of different policy options
within this context. The most important trade-offs identified by panelists
focused on the environmental effectiveness of a cap-and-trade system
versus the economic efficiency of a tax on emissions. While panelists
viewed other policy options less favorably, they cited their potential as a
complement to a market-based mechanism. These expert opinions should
be of assistance to the Congress in weighing the potential benefits and
costs of different policies for addressing climate change.
The Panelists’ Views
on the Strengths and
Limitations of Policy
Options Focused
Primarily on the
Environmental
Certainty of a Cap-
and-Trade System
versus the Efficiency
of a Tax on Emissions
Panelists Rated the
Importance of Criteria for
Evaluating Policy Options
In our first questionnaire, panelists identified criteria that they believe the
Congress should consider in evaluating the various actions and policy
options for addressing climate change. In the second questionnaire,
panelists rated the importance of those criteria, such as economic
efficiency and environmental effectiveness. Economic efficiency is used to
assess whether a policy alternative would maximize net benefits (that is,
where marginal benefits equal marginal costs) to society, and
Page 33 GAO-08-605 Climate Change
environmental effectiveness means that the policy implemented has the
desired environmental result. The criteria were divided into two
categories: efficiency-related criteria, such as economic efficiency,
environmental effectiveness, cost effectiveness, flexibility and adaptability
of policies; and equity-related criteria, such as political feasibility, impact
on international negotiations, and the distribution of costs and benefits
among generations and countries. On average, the panelists rated cost
effectiveness and political feasibility as the most important criteria (see
fig. 6 and app. III for more detail).
Page 34 GAO-08-605 Climate Change
Figure 6: Mean Panelist Ratings of the Importance of Criteria in Evaluating Policies for Addressing Climate Change
0
1
2
3
4
5
Distribution of benefits and costs across income groups
in different generations
Distribution of benefits and costs across income groups
in different countries
Distribution of benefits and costs across generations
Distribution of benefits and costs across U.S. economic
sectors
Distribution of benefits and costs across countries
Distribution of benefits and costs across income groups
in the U.S.
Minimize emissions leakage
Independence from political influence
Minimize rent seeking
Risk and uncer
tainty associated with thresholds or
abrupt changes
Implementation costs associated with the action or policy
Administrative ease/simplicity
Transparency
d
Effect on technology development or deployment
Positive effect on international negotiations or actions
by other countries
Predictability/regulatory certainty
Environmental effectiveness
c
Economic efficiency
b
Flexibility to allow decision makers to adapt the
actions/policies based on new information
Political feasibility
Cost-effectiveness
a
Criteria
Mean response on importance scale
Source: GAO analysis.
1 Not at all important
2 Somewhat important
3 Moderately important
4 Quite important
5 Extremely important
4.72
4.29
4.17
3.94
3.94
3.94
3.89
3.88
3.83
3.67
3.53
3.50
3.33
3.22
3.18
3.17
3.11
3.00
2.89
2.71
2.61
Note: Total responses for each question may range from 15 to 18. See appendix III for additional
details.
a
Cost-effectiveness is the extent to which a goal is achieved in a least cost manner.
b
Economic efficiency occurs when, from a societal perspective, production is at an efficient level (e.g.
net benefits are maximized).
c
Environmental effectiveness is the extent to which policy achieves the environmental target.
d
Transparency is the extent to which policy’s requirements and costs are visible to all parties.
Page 35 GAO-08-605 Climate Change
When asked to identify their preferred policy options, 8 of the 18 panelists
said that they prefer a cap and trade with a safety valve as a way to
combine some elements of both a cap-and-trade system and a tax. Some
panelists noted that a traditional cap-and-trade system would provide
more environmental certainty; that is, it would more likely achieve specific
emissions reductions because the policy caps the total amount of
emissions at a specific level. On the other hand, several panelists said a tax
on emissions would be more economically efficient, citing, for example, its
ability to provide certainty about marginal abatement costs associated
with controlling greenhouse gases and avoiding price volatility that could
occur in a permit market. In addition, some noted that a cap-and-trade
program can be more administratively burdensome than a tax.
Nonetheless, some of the panelists that preferred a tax said that a cap-and-
trade program, especially if it included cost minimizing components,
would be an acceptable second option to address climate change.
The Most Important Trade-
offs are between the
Relative Effectiveness of
Cap-and-Trade Systems
and the Relative Efficiency
of Taxes
The majority of panelists supporting a safety valve cited the potential for
limiting volatility as an important rationale for incorporating a safety valve
into a cap-and-trade program. In addition, some panelists cited uncertainty
regarding the marginal costs and marginal benefits of complying with a
cap-and-trade program, and some cited the flexibility that it would provide
to decision makers to respond to new information as rationales for having
a safety valve. However, 3 panelists expressed concern regarding the
compatibility of a safety valve with an international greenhouse gas
trading system. For example, one panelist stated that under any realistic
safety valve system, the permits should be good only in the country of
issue. Otherwise, countries with higher market emissions prices could buy
permits in the United States, undermining their respective emissions
targets. Another panelist added that if the United States commits to
specific emissions targets as part of an international agreement, a safety
valve may affect the United States’ ability to meet those commitments. If
the safety valve is triggered, for example, emitters will be allowed to
purchase additional permits to emit above the targeted cap for emissions,
which may keep the United States from meeting agreed-to goals. Potential
solutions offered by panelists included abolishing the safety valve after the
emissions market has stabilized and then integrating into an international
system, and incorporating a quantitatively limited safety valve where a
limited number of permits were sold once the safety valve was reached.
A majority of the panelists said that the government should auction off
rather than give away at least a portion of the permits under a cap-and-
trade system. The means by which the government distributes allowances
can have important economic implications. For example, the existing cap-
Page 36 GAO-08-605 Climate Change
and-trade programs for sulfur dioxide (a pollutant that causes acid rain)
and for carbon dioxide in the European Union give away most of the
allowances to regulated entities with a limited number of allowances
reserved for auction. The majority of panelists believed that the
government should use either a combination of auctioning and free
allocations or auctioning to distribute the allowances. In addition, we
asked the panelists to rate the importance of various actions to distribute
the revenue generated from auctioning allowances that could offset
adverse effects on consumers or particular sectors of the economy. On
average, the panelists rated using the revenues to reduce the tax burden
for low-income individuals as the most important way to distribute the
revenue (see fig. 7 and app. III for more detail). In addition, on average,
panelists rated using revenues to support research and development in
various areas, such as zero- or low-carbon technologies and carbon
capture and storage as at least moderately important.
Page 37 GAO-08-605 Climate Change
Figure 7: Mean Panelist Ratings of the Importance of Ways That Revenue Generated from a Market-Based Mechanism Could
Be Distributed
0
1
2
3
4
5
Shoring up projected shortfalls in entitlements
such as Social Security and Medicare
Supporting development of greenhouse gas
emission reduction efforts and climate
adaptation policies in poorest countries
Supporting R&D for geo-engineering
Supporting R&D for improving scientific
understanding of climate change
Supporting R&D for informing adaptation efforts
Supporting R&D for broad based sources
for alternative fuels
Supporting R&D to stimulate the development
and dissemination of zero- or low-carbon
greenhouse gas technologies
Supporting R&D for carbon capture and storage
Reducing distortionary taxes on income
Reducing distortionary taxes on labor
Reducing distortionary taxes on capital
Reducing tax burden for low-income individuals
Policy options
Mean response on importance scale
Source: GAO analysis.
1 Not at all important
2 Somewhat important
3 Moderately important
4 Quite important
5 Extremely important
3.33
3.25
3.24
3.11
3.11
3.00
2.94
2.89
2.83
2.75
2.50
2.29
Note: Total responses for each question may range from 15 to 18. See appendix III for additional
details.
Page 38 GAO-08-605 Climate Change
In the second questionnaire, we asked panelists to discuss the strengths
and weaknesses of other domestic policy options that would serve to
complement a tax or cap-and-trade system, but some viewed them less
favorably in the absence of a market-based mechanism. In weighing the
strengths and weaknesses of policy options, we asked panelists to discuss
research and development of technologies, adaptation to climate change,
revising efficiency standards, and reforming subsidies. For example,
several panelists noted that mechanisms such as vehicle fuel efficiency
standards would be unnecessary if the Congress enacted a mitigation
policy to place a price on carbon. Two panelists noted that setting
efficiency standards for vehicles was unlikely to yield cost-effective
reductions in emissions because greater fuel efficiency lowers the cost of
driving, potentially leading individuals to drive more. Table 3 reflects
examples cited by the panelists of strengths and limitations of specific
policy options.
The Panelists Viewed
Other Policy Options Less
Favorably but Cited Their
Potential as a Complement
to a Market-Based
Mechanism
Table 3: Key Strengths and Limitations of Other Policy Options Identified by Panelists
Policy option Examples of strengths Examples of limitations
R&D in low- or zero-carbon technologies
•
May help lower long-term costs of
mitigation
•
Promotes the development of new
technologies and encourages
innovation
•
Facilitates international technology
transfer
•
Government-funded R&D can be
disseminated quickly
•
Privately funded R&D may be slow to
develop
•
Insufficient as a policy on its own
•
Unnecessary in the presence of a robust
mitigation policy
•
Uncertainty regarding feasibility, costs, and
timing of deployment
•
Danger of funding less useful technologies
due to politics or uncertainty
•
Could crowd out other sources of R&D
funding
Adaptation
•
Essential to help federal, state, and
local governments plan and prepare for
unavoidable consequences
•
Clear role for the federal government in
some sectors, such as water resources
and land management
•
Insufficient policy on its own
•
Difficult to define
•
Private sector has incentives to adapt
without federal intervention
•
Federal government has little role
•
Will yield only moderate payoffs in terms of
reducing future costs
•
Removes incentive to reduce emissions or
develop better energy technologies
Page 39 GAO-08-605 Climate Change
Policy option Examples of strengths Examples of limitations
Reforming subsidies for fuels or energy-
efficient technologies
•
Necessary to make current policies
more efficient
•
Facilitates the development of better
fuels and energy-efficient technologies
•
May result in better pricing of
resources
•
Insufficient policy on its own
•
Unnecessary in the presence of a robust
mitigation policy
•
Inferior to mitigation for addressing climate
change
•
Potential for rent seeking
a
•
Economically inefficient
•
Politically difficult
Develop or revise efficiency standards
•
Could reduce the overall costs of
mitigation
•
Important in the presence of real
market failures, such as buildings and
consumer appliances
•
Politically feasible
•
Insufficient policy on its own
•
Unnecessary in the presence of a robust
mitigation policy
•
Economically inefficient
•
Unequal burden of costs
•
Limited potential benefits
R&D on the basic science of climate
change
•
Informs adaptation needs
•
Guides stringency of climate policy
goals
•
Reduces uncertainty regarding future
impacts, costs, and benefits of climate
change
•
Enhances monitoring
•
Insufficient policy on its own
•
Unnecessary in the presence of a robust
mitigation policy
•
Sufficient knowledge on the subject
•
Adequately funded at current levels
•
Could postpone action on mitigation
•
Difficult to determine the proper amount of
R&D needed
Source: GAO analysis of panelists’ responses
a
Rent seeking occurs when a party (e.g., individual or organization) seeks an economic gain (e.g.,
subsidy) from the government.
The panelists cited the strengths and weaknesses of public investments in
the development and deployment of technologies that could reduce
emissions. Some suggested such efforts could complement a market-based
mitigation policy by, for example, lowering the costs of controlling
emissions and enhancing the likelihood of achieving long-term emissions
targets, while others noted that public investment may be unnecessary
with a mitigation policy in place. In addition, some panelists said that
while they supported research and development investment, it was not
enough on its own without additional policies to address climate change.
Further, several panelists also expressed concern about the government
picking what it perceives as “winning” technologies rather than funding a
broader research and development program.
A majority of panelists said that funding efforts to adapt to the impacts of
climate change were at least moderately important. Some panelists
identified actions the federal government could take to prepare for climate
change impacts such as reforming insurance subsidy programs in areas
Page 40 GAO-08-605 Climate Change
vulnerable to natural disasters like hurricanes or flooding and creating
capacity within federal agencies to protect against and react to climate
change impacts. When discussing the strengths and weaknesses of actions
to adapt to climate change, several panelists noted that implementing
adaptation policies may help reduce vulnerabilities when faced with
inevitable climate change or in the event of possible catastrophic climate
change. One panelist referred to adaptation as a risk management strategy,
or form of insurance, against uncertain future events resulting from
climate change. Some panelists noted that a clear federal role exists for
certain sectors, such as water resource management and property rights
protection, which could require additional resources for infrastructure
development, research, and adapting practices to use alternative methods
for distributing water and managing federal lands. Another panelist said
that implementing adaptation policies could also help ensure greater
international and economic equity, since some areas likely to be affected
by climate change are underdeveloped, economically disadvantaged, or
vulnerable in some way to impacts. However, some panelists stated that
adaptation was difficult to define, making the federal role unclear, and
others said that incentives for adaptation may already exist, limiting the
need for a federally directed adaptation policy.
Panelists identified the strengths and limitations of other policy options to
address climate change, such as subsidy reform for alternative fuels or
energy-efficient technologies and research and development into the basic
science of climate change. For example, in rating the importance of
additional actions for the Congress to consider, 12 panelists rated
reforming subsidies for alternative fuels or energy-efficient technologies as
at least moderately important, and several panelists noted that subsidies
for alternative fuels or energy-efficient technologies are economically
inefficient or insufficient on their own without an appropriate mitigation
policy. Regarding research and development on the basic science of
climate change, several panelists said that it could help inform adaptation
efforts and reduce uncertainty of costs or benefits by improving
understanding of the potential dangers from climate change.
30
However,
some panelists noted that additional funding of research and development
on the basic science of climate change is not warranted, citing reasons
such as a belief that it is adequately funded at current levels, it could be
used as an excuse to delay taking action to mitigate climate change, and
30
The science of climate change refers to knowledge about the effect on the climate of
factors such as greenhouse gas concentrations, clouds, and the carbon cycle.
Page 41 GAO-08-605 Climate Change
that the priority should instead be placed on adaptation efforts and
monitoring.
As agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from the
report date. At that time, we will send copies to House Committees on
Energy and Commerce; Natural Resources; Science and Technology;
Transportation and Infrastructure; and the Select Committee on Energy
Independence and Global Warming. We will also provide the report to the
Senate Committees on Environment and Public Works; Energy and
Natural Resources; Commerce, Science and Transportation; and the Joint
Economic Committee. Copies will be made available to others on request,
and the report will be available at no charge on the GAO Web site at
http://www.gao.gov.
If you or your staff have any questions regarding this report, please
contact me at (202) 512-3841 or [email protected]. Contact points for
our Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors are listed in appendix VI.
John B. Stephenson
Director, Natural Resources and Environment
Page 42 GAO-08-605 Climate Change
Appendix I: Scope and Methodology
Appendix I: Scope and Methodology
To address the first and second objectives, we (1) reviewed relevant
climate change academic literature and documents developed by federal
agencies, (2) met with agency officials from the Environmental Protection
Agency (EPA), the Department of Energy (DOE) including the Energy
Information Administration (EIA), the Department of Commerce including
the National Oceanic and Atmospheric Administration (NOAA), the United
States Department of Agriculture (USDA), the National Aeronautic and
Space Administration (NASA), and the Council of Economic Advisors
(CEA), and (3) obtained expert opinion on the economic effects of actions
to address climate change and the strengths and weaknesses of those
actions using a virtual panel on the Internet.
To structure and gather expert opinions from the panel, we employed a
modified version of the Delphi method. The method is based on a
structured process for collecting and distilling knowledge from a group of
experts by means of a series of questionnaires.
1
Used to support informed
decision making, the Delphi method was first developed at the RAND
Corporation in the 1950s. One of the strengths of this approach is its
flexibility, and while first used in a live group discussion format, the
method is easily modified for various settings. The modified process we
employed utilized two Web-based questionnaires, and incorporated an
iterative and controlled feedback process to gather the experts’ opinions.
Specifically, experts’ responses to the first questionnaire were used to
create the questions for the second, allowing the experts to consider the
opinions and issues raised by other panelists when responding to the
second round of questions. Also, by using a Web-based process, we were
able to overcome some of the potential biases associated with group
discussions. These biasing effects include the potential dominance of
individuals and group pressure for conformity. Moreover, by creating a
virtual panel, we were able to include more experts than would have been
possible with a live panel. While the method has these strengths, there are
some potential limitations. For example, there is considerable reliance on
the active participation of the panelists, which can vary widely, and some
panelists may not complete the entire study. In addition, the results of the
iterative process are limited to the issues, topics, and responses generated
by those participating; thus some topics or viewpoints may not be
considered in the process. To mitigate the latter limitation, we added
1
Adler, Michael, and Eric Ziglio, eds. Gazing into the Oracle: The Delphi Method and Its
Application to Social Policy and Public Health (Bristol, Pennsylvania: 1996).
Page 43 GAO-08-605 Climate Change
Appendix I: Scope and Methodology
critical questions to the second questionnaire that were not discussed in
the first round based on our review of the literature.
We contracted with the National Academy of Sciences (NAS) to select and
recruit a panel of experts with a range of in-depth experience assessing
the economic impacts of climate change policy. Participants were to (1)
have expertise in modeling and analyzing benefits, costs, and uncertainties
using integrated assessment methods; (2) have knowledge of policies for
mitigating climate change; (3) have knowledge of the economic trade-offs
associated with different policies for mitigating climate change; and (4) be
affiliated with U.S.-based institutions including academia, the federal
government, and other research-oriented entities. To select the experts,
we provided NAS with a preliminary list of potential panelists that we
identified in our review of the literature. Taking these names into account,
NAS developed a list of 37 who met our criteria. We reviewed and agreed
with the list of names, and NAS sent 25 individuals an electronic letter via
e-mail inviting them to participate in the study along with a description of
the project. Invitees were given the option of discussing the project further
with a project representative before deciding whether or not to
participate, which some chose to do. Of the 25 panelists NAS recruited to
participate, 21 agreed and were sent the first questionnaire. Nineteen
responded to the first questionnaire, and 18 responded to the second.
2
All
of the experts who participated completed a form stating that they had no
conflicts of interest that would compromise their ability to participate in
the panel.
Prior to the posting of the questionnaires, we conducted a series of
pretests with internal and external experts, including two panel
participants. The goals of the pretests were to check that (1) the questions
were clear and unambiguous and (2) terminology was used correctly. We
made changes to the content and format of both questionnaires as
necessary during the pretesting processes. We also conducted usability
tests of both questionnaires for the Internet to ensure operability. For each
phase of the Delphi, we posted a questionnaire on the Internet. Panel
members were notified of the availability of the questionnaire with an
e-mail message. The e-mail message contained a unique user name and
password that allowed each respondent to log on and fill out a
2
The responses presented in this report are from the second questionnaire, supplemented
with examples and anecdotes from the open-ended responses in the first round, and
represent the views of the 18 panelists who participated in both phases of the panel.
Page 44 GAO-08-605 Climate Change
Appendix I: Scope and Methodology
questionnaire but did not allow respondents access to the questionnaires
of others.
In the first phase, we asked panelists to provide responses to three open-
ended questions on the economics of actions to address climate change
developed from an extensive literature review. We asked the panelists to
(1) identify what actions, if any, the Congress should consider to address
climate change; (2) provide estimates of the benefits and costs of their
recommended actions; and (3) identify criteria that are appropriate for
evaluating the potential actions. In addition, we asked the panelists to
provide citations to support their responses.
After the first questionnaire was completed, we performed a content
analysis of the open-ended responses. Using the themes and topics that
were discussed, as well as the varying opinions of the panel, the second
questionnaire was constructed. For example, panelists were asked to rate
the importance of the various assumptions and uncertainties associated
with integrated assessment models that the experts collectively identified
in the first questionnaire. Using this approach, panelists could provide
their opinions on the topics that others had raised, and areas of agreement
and disagreement could be identified. In addition, this approach allowed
for the panelists to reevaluate their original responses in light of the
responses of the whole group. While these first round responses were the
primary source for developing the second questionnaire, literature cited in
support of their responses, as well as information gathered from GAO’s
literature review were also incorporated as necessary. The second phase
questionnaire included mostly closed-ended questions, with a limited
number of open-ended questions, and encapsulated panelists’ views on
preferred policy options, potential benefits and costs, key uncertainties,
and the strengths and weaknesses of different policy options.
Panel members had approximately 4 weeks between July and August of
2007 to complete their questionnaires in the first phase of the panel,
approximately 4 weeks in October and November of 2007 to complete
their questionnaires in the second phase of the panel, and approximately 4
weeks to provide comment (at their discretion) on a summary of their
second round responses in January of 2008. Selected questions and
aggregated responses from the second phase are presented in appendix III.
In addition, we asked several follow-up questions requesting that panelists
clarify their responses or elaborate on critical policy issues. While we
display only the quantitative, closed-ended responses, we also relied on
the responses to the qualitative, open-ended questions to inform our
findings in this report. GAO provided a summary of the findings of this
Page 45 GAO-08-605 Climate Change
Appendix I: Scope and Methodology
report and briefed representatives from the CEA, the Council on
Environmental Quality (CEQ), EPA, and DOE on the results of the panel
prior to issuing this report. The views expressed by the panel members do
not necessarily represent the views of GAO.
Page 46 GAO-08-605 Climate Change
Appendix II: Selected Characteristics of
Panelists’ Preferred Policy Options for
Addressing Climate Change
Listed below are selected panelist policy recommendations for
implementing a market-based mechanism to place a price on greenhouse
gas emissions.
Table 4: Selected Characteristics of Panelists’ Preferred Policy Options for Addressing Climate Change
Panelist
Preferred
market-
based
policy
Greenhouse
gases
covered
Date of
implementation Scope
Point of
regulation
a
Initial
price
range
b
Safety
valve
price
c
Complementary
policy actions
Panelist 1 Cap and
trade
All gases 2010-2015 Economywide Combination > 14 N/A (1) R&D on low
carbon energy
technologies; (2)
energy efficiency and
renewable portfolio
standards
Panelist 2 Cap and
trade
All gases 2010-2015 Economywide Upstream 0.3-3 N/A Not specified
Panelist 3 Cap and
trade
All gases 2010-2015 Economywide Combination 21-30 N/A (1) R&D subsidies;
(2) adaptation
Panelist 4 Cap and
trade w/
safety
valve
Carbon
dioxide
2010-2015 Economywide Upstream 21-30 Don’t
know
Not specified
Panelist 5 Cap and
trade w/
safety
valve
All gases Before 2010 Economywide Upstream 0.3-3 0.55 (1) International
negotiation and
assistance
Panelist 6 Cap and
trade w/
safety
valve
All gases 2010-2015 Economywide Downstream 3-5 3.81 (1) Do away with
import tariffs and
agricultural subsidies;
(2) tax breaks for
private sector
research and
development; (3)
remove perverse
subsidies; (4)
declassify energy
saving and
lightweight
technologies for
export to China and
India
Panelist 7 Cap and
trade w/
safety
valve
Carbon
dioxide
Before 2010 Economywide Combination 3-5 5 (1) Funding R&D; (2)
funding adaptation;
(3) reform policies
that discourage
energy efficiency
Appendix II: Selected Characteristics of
Panelists’ Preferred Policy Options for
Addressing Climate Change
Page 47 GAO-08-605 Climate Change
Appendix II: Selected Characteristics of
Panelists’ Preferred Policy Options for
Addressing Climate Change
Panelist
Preferred
market-
based
policy
Greenhouse
gases
covered
Date of
implementation Scope
Point of
regulation
a
Initial
price
range
b
Safety
valve
price
c
Complementary
policy actions
Panelist 8 Cap and
trade w/
safety
valve
All gases 2010-2015 Economywide Upstream 11-20 3 to 4
times the
initial price
of
emissions
(1) Negotiate
international
agreements with
major greenhouse
gas emitters; (2)
invest in pilot
demonstration
projects for carbon
capture and storage
and renewable fuels.
Panelist 9 Cap and
trade w/
safety
valve
All gases 2010-2015 Economywide Upstream 11-20 12 to 20 (1) Support for
technology research,
development, and
deployment; (2)
support for
developing countries;
(3) international
engagement to
leverage our action
for action by other
countries.
Panelist 10 Cap and
trade w/
safety
valve
All gases Before 2010 Economywide
including land
use
Combination 1-10 2.70 (1) Limit loopholes
that could arise in
policies that focus on
specific sectors or
groups of economic
actors.
Panelist 11 Cap and
trade w/
safety
valve
All gases Before 2010 Economywide Downstream 11-20 25 (1) Research and
development; (2)
technology transfer
(both emphasizing
adaptation and
emissions reduction
strategies).
Panelist 12 Tax Carbon
dioxide
Before 2010 Economywide Upstream 11-20 N/A (1) Support carbon
capture and storage;
(2) sponsor research
and development in
alternative energy
sources; (3) sponsor
adaptation at home
and abroad.
Panelist 13 Tax All gases Before 2010 Economywide Downstream 0.3-3 N/A Not specified
Panelist 14 Tax All gases Before 2010 Economywide Combination 6-8 N/A (1) Basic research in
the underlying
science for low-
carbon energy
systems.
Page 48 GAO-08-605 Climate Change
Appendix II: Selected Characteristics of
Panelists’ Preferred Policy Options for
Addressing Climate Change
Panelist
Preferred
market-
based
policy
Greenhouse
gases
covered
Date of
implementation Scope
Point of
regulation
a
Initial
price
range
b
Safety
valve
price
c
Complementary
policy actions
Panelist 15 Tax Carbon
dioxide first,
then expand
to all
2010-2015 Economywide Upstream 11-20 N/A (1) Adaptation; (2)
R&D (including geo-
engineering)
Panelist 16 Tax All gases 2010-2015 Economywide
incorporating
carbon sinks
from land use
Mostly
upstream,
midstream
for utilities
and carbon
capture and
storage
11-20 N/A (1) Independently
directed effort to
support R&D; (2)
international
assistance and
negotiations to
facilitate action by
other nations
Panelist 17 Tax No answer Before 2010 Economywide Downstream 41-50 N/A Not specified
Panelist 18 Tax All gases Before 2010 Economywide Upstream N/A
d
N/A Not specified
Source: GAO.
Note: N/A stands for not applicable.
a
Point of regulation in the economy. Combination means the policy would have both upstream and
downstream provisions.
b
Initial price range per metric ton of carbon dioxide equivalent in 2007 dollars.
c
Safety valve price per metric ton of carbon dioxide equivalent in 2007 dollars.
d
One panelist preferred a policy that set a price for each individual greenhouse gas as opposed to
one price for all emissions.
Page 49 GAO-08-605 Climate Change
Appendix III: Selected Questions and Expert
Responses
Listed below are questions and summary panelist responses supporting
figures 2 through 7 of this report. Panelists were asked to rate the
importance of various items related to policy approaches and rationales
for addressing climate change (Mean responses were calculated by
assigning the following values to the rated level of importance: 1 = not at
all, 2 = somewhat, 3 = moderately, 4 = quite, and 5 = extremely).
Question 1: In addition to establishing a price on anthropogenic sources of emissions using either a
tax or cap and trade system (or other regulatory approach), panelists identified the following list of
actions that Congress might also consider as part of a broader portfolio of actions. How important
is it that Congress consider each action to address climate change?
Panelist responses
Rated level of importance
Additional actions
to address climate
change
Not at all Somewhat Moderately Quite Extremely
Don’t know
/ no
response
Number of
responses
Mean level of
importance
Participating in
international
negotiations to
facilitate participation
in climate agreements
or to enhance U.S.
credibility/influence 0 1 2 2 12 1 17 4.47
Funding R&D and/or
deployment of low- or
zero-carbon
technologies
1 5 2 5 5 0 18 3.44
Creating an
independent
oversight board to
establish, monitor,
and revise the
mechanism for
controlling
greenhouse gases
(tax or cap and trade)
3 3 14 5 2 163.31
Providing
international
assistance to
developing countries 1 5 5 3 40 18 3.22
Appendix III: Selected Questions and Expert
Responses
Page 50 GAO-08-605 Climate Change
Appendix III: Selected Questions and Expert
Responses
Panelist responses
Rated level of importance
Additional actions
to address climate
change
Not at all Somewhat Moderately Quite Extremely
Don’t know
/ no
response
Number of
responses
Mean level of
importance
Reforming subsidies
for alternative fuels or
energy-efficient
technologies 1 4 5 5 2 1 17 3.18
Funding efforts to
adapt to impacts of
climate change by
reforming agricultural
subsidy programs,
land use practices,
flood control, etc.
1 5 4 6 2 0 18 3.17
Developing or
revising technology
efficiency standards
(for fuels or energy
use) 6 1 3 6 1 1 17 2.71
Funding private
sector R&D to
achieve cost-effective
emissions reductions
in developing
countries
4 7 3 3 10 18 2.44
Funding R&D on
domestic and
international public
health impacts that
could arise as a result
of climate change
2 12 1 2 1 0 18 2.33
Levying a graduated
tax on cars and light
trucks (including sport
utility vehicles), based
on fuel economy
7 3 52 1 0 18 2.28
Source: GAO.
Page 51 GAO-08-605 Climate Change
Appendix III: Selected Questions and Expert
Responses
Question 2: In the first round of questions, panelists identified criteria that the Congress should
consider in evaluating the various actions and policy options for addressing climate change. The list
below summarizes these criteria. How important would you say that the following criteria are in
evaluating the various policies for addressing climate change?
Panelist responses
Rated level of importance
Criteria Not at all Somewhat Moderately Quite Extremely
Don’t
know / no
response
Number of
responses
Mean level
of
importance
Cost-effectiveness 0 0 0 5 13 0 18 4.72
Political feasibility 0 1 1 7 8 1 17 4.29
Flexibility to allow
decision makers to
adapt the
actions/policies based
on new information
0 0 4 7 7 0 18 4.17
Economic efficiency 0 1 5 6 6 0 18 3.94
Environmental
effectiveness
0 2 3 760 18 3.94
Predictability/regulatory
certainty information 0 2 4 5 7 0 18 3.94
Positive effect on
international
negotiations or actions
by other countries
0 3 19 5 0 18 3.89
Effect on technology
development or
deployment
0 1 4 8 41 173.88
Transparency 0 2 3 940 18 3.83
Administrative
ease/simplicity
0 2 4 10 2 0 18 3.67
Implementation costs
associated with the
action or policy
0 3 48 21 173.53
Risk and uncertainty
associated with
thresholds or abrupt
changes 1 3 3 8 3 0 18 3.50
Minimize rent seeking 2 2 6 4 4 0 18 3.33
Independence from
political influence
1 4 6 4 3 0 18 3.22
Page 52 GAO-08-605 Climate Change
Appendix III: Selected Questions and Expert
Responses
Panelist responses
Rated level of importance
Criteria Not at all Somewhat Moderately Quite Extremely
Don’t
know / no
response
Number of
responses
Mean level
of
importance
Minimize emissions
leakage
1 3 66 1 1 173.18
Distribution of benefits
and costs across
income groups in the
United States 0 4 8 510 18 3.17
Distribution of benefits
and costs across
countries
0 3 11 3 10 18 3.11
Distribution of benefits
and costs across U.S.
economic sectors
0 7 5 5 1 0 18 3.00
Distribution of benefits
and costs across
generations
1 7 5 3 20 18 2.89
Distribution of benefits
and costs across
income groups in
different countries 0 9 4 4 0 1 17 2.71
Distribution of benefits
and costs across
income groups in
different generations
1 10 2 5 0 0 18 2.61
Source: GAO.
Page 53 GAO-08-605 Climate Change
Appendix III: Selected Questions and Expert
Responses
Question 3: Panelists identified several actions that Congress should consider in deciding how to
distribute the revenue that would be generated from a federal program to establish a price on
greenhouse gases (from an imposition of a tax or from an auction of permits). How important is it
for Congress to distribute the generated revenue to each of these categories?
Panelist responses
Rated level of importance
Uses for revenue
distribution
Not at all Somewhat Moderately Quite Extremely
Don’t know
/ no
response
Number of
responses
Mean level
of
importance
Reducing tax burden
for low-income
individuals
1 4 5 4 4 0 18 3.33
Reducing
distortionary taxes
on capital
1 1 8 5 1 2 16 3.25
Reducing
distortionary taxes
on labor
0 3 93 21 173.24
Reducing
distortionary taxes
on income
0 4 9 4 1 0 18 3.11
Supporting R&D for
carbon capture and
storage
2 4 6 2 4 0 18 3.11
Supporting R&D to
stimulate the
development and
dissemination of
zero- or low-
carbon/greenhouse
gas technologies
2 4 5 6 1 0 18 3.00
Supporting R&D for
broad-based
sources for
alternative fuels 3 3 72 3 0 18 2.94
Supporting R&D for
informing adaptation
efforts
3 5 4 3 3 0 18 2.89
Supporting R&D for
improving scientific
understanding of
climate change 2 6 5 3 20 18 2.83
Supporting R&D for
geo-engineering
3 4 5 2 2 2 16 2.75
Page 54 GAO-08-605 Climate Change
Appendix III: Selected Questions and Expert
Responses
Panelist responses
Rated level of importance
Uses for revenue
distribution
Not at all Somewhat Moderately Quite Extremely
Don’t know
/ no
response
Number of
responses
Mean level
of
importance
Supporting
development of
greenhouse gas
emission reduction
efforts and climate
adaptation policies
in poorest countries 2 9 4 2 1 0 18 2.50
Shoring up projected
shortfalls in
entitlements such as
Social Security and
Medicare
6 5 2 3 1 1 17 2.29
Source: GAO.
Page 55 GAO-08-605 Climate Change
Appendix III: Selected Questions and Expert
Responses
Question 4: Many panelists said that it is difficult to estimate the potential benefits
associated with emissions mitigation partly because of uncertainty about the impact of
climate change and the actions that could be used to address it. In some cases, the panelists
identified general categories of benefits that could accrue from various policy options. These
categories are below. How important are the following categories of potential benefits as a
rationale for addressing climate change?
Panelist responses
Rated level of importance
Categories of
benefits of actions
to address climate
change Not at all Somewhat Moderately Quite Extremely
Don’t know /
no response
Number of
responses
Mean level
of
importance
Avoided climate
change damages
(including flooding,
extreme weather
events, crop
damage, impacts on
sensitive
ecosystems, public
health, and species
loss)
0 0 1 11 5 1 17 4.24
Reducing risk or the
likelihood of extreme
events associated
with climate change 1 0 2 8 6 1 17 4.06
Establishing a price
signal to influence
market or individual
behavior 3 1 0 2 10 2 16 3.94
Facilitation of
international
cooperation on
climate change
3 1 0 5 7 2 16 3.75
Development of a
regulatory system for
greenhouse gas
emissions 3 2 2 4 5 2 16 3.38
Inducing investment
in developing
countries
4 3 41 3 3 15 2.73
Page 56 GAO-08-605 Climate Change
Appendix III: Selected Questions and Expert
Responses
Panelist responses
Rated level of importance
Categories of
benefits of actions
to address climate
change Not at all Somewhat Moderately Quite Extremely
Don’t know /
no response
Number of
responses
Mean level
of
importance
Development,
deployment, and,
more generally,
creating incentives
for businesses and
consumers to invest
in low- or zero-
carbon technologies
5 3 1 6 1 2 16 2.69
Reducing risk of
international conflict
over natural
resources and
territory
4 2 7 2 1 2 16 2.63
Source: GAO.
Page 57 GAO-08-605 Climate Change
Appendix III: Selected Questions and Expert
Responses
Question 5: Panelists identified several key assumptions that they made in estimating the
benefits and costs using integrated assessment models. How important are the following
assumptions in terms of affecting the estimated benefits and costs in integrated assessment
models?
Panelist responses
Rated level of importance
Key
assumptions
Not at all Somewhat Moderately Quite Extremely
Don’t know /
no response
Number of
responses
Mean level
of
importance
Real discount
rate for
assessing
benefits and
costs of
addressing
climate
change
0 1 2 3 11 1 17 4.41
Inclusion of
all economic
sectors
0 1 1 9 6 1 17 4.18
Baseline
economic
growth
0 0 2 11 3 2 16 4.06
Degree of
international
participation
0 2 1 8 6 1 17 4.06
Climate
sensitivity
0 0 3 10 4 1 17 4.06
Baseline
energy use 0 0 3 11 3 1 17 4.00
Rate of
technological
change
0 1 3 9 3 2 16 3.88
Likelihood of
abrupt
change or
extreme
events
0 2 4 7 4 1 17 3.76
Energy price
projections
0 2 5 8 21 173.59
Price
elasticities 0 0 7 9 0 2 16 3.56
Page 58 GAO-08-605 Climate Change
Appendix III: Selected Questions and Expert
Responses
Panelist responses
Rated level of importance
Key
assumptions
Not at all Somewhat Moderately Quite Extremely
Don’t know /
no response
Number of
responses
Mean level
of
importance
Coverage
across
greenhouse
gases 0 2 7 5 3 1 17 3.53
Baseline
population
growth
0 1 10 5 1 1 17 3.35
Baseline
adaptation
1 4 4 6 2 1 17 3.24
Efficient use
of revenue by
reducing
distortionary
taxes
0 5 7 4 1 1 17 3.06
Ancillary
public health
benefits
1 3 12 1 0 1 17 2.76
Source: GAO.
Page 59 GAO-08-605 Climate Change
Appendix III: Selected Questions and Expert
Responses
Question 6: Numerous respondents identified the importance of considering risk and uncertainty in
identifying policy options for the Congress to consider. Below is a list of the key uncertainties that
panelists identified. In general, how important are each of these uncertainties in terms of affecting
the estimated benefits and costs in integrated assessment models?
Panelist responses
Rated level of importance
Key
uncertainties
Not at all Somewhat Moderately Quite Extremely
Don’t know/
no response
Number of
responses
Mean level
of
importance
Thresholds
and abrupt
changes in
climate
system
0 1 4 5 8 0 18 4.11
Science of
climate
change
0 0 5 8 50 18 4.00
Economic
effect of
actions to
address
climate
change
0 2 4 8 40 18 3.78
Discounting
(in general)
1 4 2 5 6 0 18 3.61
How people
will adapt to
climate
change 0 2 6 8 20 18 3.56
Pure rate of
time
preference
1 4 3 550 18 3.50
Elasticity of
the marginal
utility of
consumption 2 4 4 6 1 1 17 3.00
Source: GAO.
Page 60 GAO-08-605 Climate Change
Appendix IV: Panel of Experts
Appendix IV: Panel of Experts
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
Page 61 GAO-08-605 Climate Change
Appendix V: Bibliography of Selected
Literature Reviewed by GAO
Appendix V: Bibliography of Selected
Literature Reviewed by GAO
Bullets identify citations provided by panelists in their responses.
Aldy, Joseph E., Scott Barrett, and Robert N. Stavins. “Thirteen Plus One:
A Comparison of Global Climate Policy Architectures.” Climate Policy,
vol. 3 (2003): 373-397.
• Ahmed, Rasha, and Kathleen Segerson. Emissions Control and the
Regulation of Product Markets: The Case of Automobiles. Working Paper,
Department of Economics, University of Connecticut: July 2007.
• Antle, J. M., S. M. Capalbo, K. Paustian and M. K. Ali. “Estimating the
Economic Potential for Agricultural Soil Carbon Sequestration in the
Central United States Using an Aggregate Econometric-Process Simulation
Model,” Climatic Change, vol. 80 (2007): 145-171.
Ashenfelter, Orley, and Karl Storchmann. Using a Hedonic Model of Solar
Radiation to Assess the Economic Effect of Climate Change: The Case of
Mosel Valley Vineyards. Working Paper 12380, National Bureau of
Economic Research. Cambridge: July 2006.
Azar, Christian, and Kristian Lindgren. “Catastrophic Events and
Stochastic Cost-Benefit Analysis of Climate Change: Editorial.” Climatic
Change, vol. 56, (2003): 245-255.
• Brown, P. G. “Toward an Economics of Stewardship: The Case of
Climate.” Ecological Economics, Vol. 26 (1998): 11-21.
• Burtraw et al. “Ancillary Benefits of Reduced Air Pollution in the United
States from Moderate Greenhouse Gas Mitigation Policies in the
Electricity Sector.” Journal of Environmental Economics and
Management, 45 (2003): 650-73.
• United States Climate Change Science Program. Scenarios of Greenhouse
Gas Emissions and Atmospheric Concentrations. 2007.
• Cline, William R. The Economics of Global Warming. Washington, D.C.:
Institute for International Economics, 1992.
Congressional Budget Office. Evaluating the Role of Prices and R&D in
Reducing Carbon Dioxide Emissions. Pub. 2731. Washington, D.C.:
September 2006.
Page 62 GAO-08-605 Climate Change
Appendix V: Bibliography of Selected
Literature Reviewed by GAO
Congressional Budget Office. Trade-offs in Allocating Allowances for
Carbon Dioxide Emissions. Washington, D.C.: April 25, 2007.
Congressional Budget Office. Uncertainty in Analyzing Climate Change:
Policy Implications. Washington, D.C.: January 2005.
Congressional Research Service. Climate Change: Design Approaches for
a Greenhouse Gas Reduction Program. RL33799. Washington, D.C.:
Updated January 16, 2007.
Congressional Research Service. U.S. Global Climate Change Policy:
Evolving Views on Cost, Competitiveness, and Comprehensiveness.
RL30024. Washington, D.C.: Updated January 29, 2007.
DeCanio, Stephen J., Richard B. Howarth, Alan H. Sanstad, Stephen H.
Schneider, and Starley L. Thompson. New Directions in the Economics
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Page 74 GAO-08-605 Climate Change
Appendix VI:
A
GAO Contact and Staff
cknowledgments
Page 75 GAO-08-605
Appendix VI: GAO Contact and Staff
Acknowledgments
John Stephenson, (202) 512-3841, or [email protected]
In addition to the individual named above, Quindi Franco, Cindy Gilbert,
Michael Hix, Tim Guinane, Micah McMillan, and Kate Robertson made key
contributions to this report. JoAnne Berry, Nancy Crothers, Christine
Fishkin, Brandon Haller, Tom McCool, Susan Offutt, Benjamin Shouse,
Kim Raheb, and Ardith Spence also made important contributions to this
report.
GAO Contact
Staff
Acknowledgments
(360755)
Climate Change
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