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WORKSHOP PROCEEDINGS Assessing the Benefits of Avoided Climate Change: Cost‐Benefit Analysis and Beyond

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WORKSHOP PROCEEDINGS Assessing the Benefits of Avoided Climate Change: Cost‐Benefit Analysis and Beyond WORKSHOP PROCEEDINGS Assessing the Benefits of Avoided Climate Change: Cost‐Benefit Analysis and Beyond March 16‐17, 2009 Washington, DC May 2010 This workshop was made possible through a generous grant from the Energy Foundation. Energy Foundation 301 Battery St. San Francisco, CA 94111 Workshop Speakers David Anthoff, Eileen Claussen, Kristie Ebi, Chris Hope, Richard Howarth, Anthony Janetos, Dina Kruger, James Lester, Michael MacCracken, Michael Mastrandrea, Steve Newbold, Brian O’Neill, Jon O’Riordan, Christopher Pyke, Martha Roberts, Steve Rose, Joel Smith, Paul Watkiss, Gary Yohe Project Directors Steve Seidel Janet Peace Project Manager Jay Gulledge Production Editor L. Jeremy Richardson Content Editors Jay Gulledge, L. Jeremy Richardson, Liwayway Adkins, Steve Seidel Suggested Citation Gulledge, J., L. J. Richardson, L. Adkins, and S. Seidel (eds.), 2010. Assessing the Benefits of Avoided Climate Change: Cost­Benefit Analysis and Beyond. Proceedings of Workshop on Assessing the Benefits of Avoided Climate Change, Washington, DC, March 16‐17, 2009. Pew Center on Global Climate Change: Arlington, VA. Available at: http://www.pewclimate.org/events/2009/benefitsworkshop. The complete workshop proceedings, including video of 17 expert presentations, this summary report, and individual off­prints of expert papers are available free of charge from the Pew Center on Global Climate Change at http://www.pewclimate.org/events/2009/benefitsworkshop. May 2010 Pew Center on Global Climate Change 2101 Wilson Blvd., Suite 550 Arlington, VA 22201 Table of Contents Foreword .............................................................................................................................. ii Agenda ................................................................................................................................. iii Participant List ...................................................................................................................... v Speaker Biographies ............................................................................................................ vii Executive Summary ............................................................................................................... 1 Expanded Workshop Summary .............................................................................................. 4 Glossary of Terms and Concepts .......................................................................................... 14 Background Papers for Session 1: Perspectives on Government Decision Making for Climate Change....................................... 15 The Economics of Climate Change Impacts: A Case Study on the Motivation for Government Decisions to Limit Greenhouse Gas Emissions, Lester and Smith ..................................... 17 Background Papers for Session 2: Challenges to Quantifying Damages from Climate Change .................................................... 39 Challenges to Providing Quantitative Estimates of the Environmental and Societal Impacts of Global Climate Change, MacCracken and Richardson ............................................ 41 Social Vulnerability and Risk, Ebi ............................................................................................................ 67 Background Papers for Session 3: The Role of Uncertainty in Assessing the Benefits of Climate Policy ...................................... 83 Representation of Climate Impacts in Integrated Assessment Models, Mastrandrea .......................... 85 The Social Cost of CO2 and the Optimal Timing of Emissions Reductions under Uncertainty, Hope ... 101 Background Papers for Session 4: Advances in the Economic Analysis of the Benefits of Climate Policy .................................. 117 Federal Decision‐Making on the Uncertain Impacts of Climate Change: Incremental vs. Non‐Incremental Climate Decisions, Rose .................................................................. 119 The Need for a Fresh Approach to Climate Change Economics, Ackerman, DeCanio, Howarth and Sheeran .......................................................................................... 159 Uncertainty and the Benefits of Climate Change Policies, Newbold and Daigneault .......................... 183 Background Paper for the Keynote Address ....................................................................... 199 Addressing Climate Change through a Risk Management Lens, Yohe.................................................. 201 Pew Benefits Workshop | Table of Contents i FOREWORD The Pew Center on Global Climate Change is pleased to present the proceedings of its March 2009 workshop, Assessing the Benefits of Avoided Climate Change: Cost­Benefit Analysis and Beyond. Even though significant uncertainties about future climate impacts remain, government decision‐making requires consideration of all economic costs and benefits if policies are to maximize the social benefits of regulatory decisions. This workshop was convened to explore the current state of the art in analyzing climate‐related benefits, its strengths and weaknesses, and ways to improve it. Placing a value on the benefits of reducing greenhouse gas emissions is quickly moving from the pages of academic journals and IPCC reports to the front burner in regulatory decision making. This policy revolution began with the growing acceptance of the science linking climate change to adverse impacts on public health and welfare and the potential catastrophic risks associated with continued greenhouse gas emissions. In the absence of federal action to limit climate change, concerned citizens and state governments intervened through the courts. The 2007 decision of the Supreme Court in Massachusetts v. EPA set down a clear marker that the consequences of climate change cannot simply be disregarded in regulatory decisions. Even without new climate legislation, therefore, limited steps to reduce greenhouse gas emissions have begun to unfold through individual regulatory decisions across a number of agencies. When I was in government, I managed the writing of regulations, including the acid rain trading program and the phase out of CFCs. A key element in these and all rules developed across the government is the use of cost‐benefit analysis (CBA). Yet the benefits from reducing greenhouse gas emissions have been ignored, until recently. In 2009, DOE used CBA to account for the benefits of reducing greenhouse gas emissions in setting efficiency standards for beverage vending machines. NHTSA and EPA followed suit in setting efficiency standards and greenhouse gas limits for light‐ duty vehicles. Now that the benefits are being considered, we must ensure that the estimates adequately reflect the risks of climate change. As important as individual regulatory decisions may be, they are no substitute for major new legislation to limit climate change. Congress and the Obama administration are grappling with how to bring about the necessary shift to a low‐carbon economy. Yet in these difficult economic times, efforts to put a price on carbon are met with objections that it is too expensive. The best counter to this claim is that inaction is also very expensive, and the risk of intolerable outcomes is much greater if we don’t act to limit climate change. The need for a better quantification of the benefits of greenhouse gas reductions that incorporates the risks of inaction is thus urgent. The government’s initial effort to account for climate‐related benefits in regulatory decisions is a step in the right direction. But much work is still needed to develop sound estimates of those benefits. I hope that these proceedings will clarify this need for policy makers and identify some practical steps forward. I thank all of the workshop speakers and participants, especially the background paper authors, who helped make the workshop a success. Eileen Claussen President Pew Center on Global Climate Change ii Foreword | Pew Benefits Workshop Agenda Assessing the Benefits of Avoided Climate Change Hyatt Regency on Capitol Hill, Washington, DC March 16‐17, 2009 The U.S. government is considering a range of near‐term actions to address the risks of climate change. The Obama administration and key members of Congress intend to make climate legislation a top priority this year. The earliest action, however, may come from federal agencies being pressured by the courts and states to consider limiting CO2 emissions under existing legislative authority. A key element of federal rulemaking is assessing the costs and benefits of proposed policies. While the costs of reducing greenhouse gas emissions have received much attention from analysts and policymakers, far less attention has been directed at quantifying the benefits of such reductions. In spite of remaining uncertainties, the analytical community should offer practical guidance for informing near‐term decisions. Drawing from the environmental economics, impacts, vulnerability, and risk assessment communities, this workshop will consider what useful insights can be gleaned now about quantifying the benefits of reducing greenhouse gas emissions. The workshop’s objectives are to develop a set of practical recommendations that decision makers can employ in the near‐term and to outline a research path to improve decision making tools over time. DAY 1: Symposium – Assessing the benefits of avoided climate change in government decision making 8:00­8:30 AM Continental Breakfast 8:30­8:45 AM Opening Remarks Eileen Claussen,
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