Global warming is sweeping Capitol Hill. Tuesday featured three different committee hearings, with the Senate Energy and Natural Resources Committee featuring heavy-hitter Sir Nicholas Stern. Stern is the author of the influential 2006 Stern Review on the Economics of Climate Change.
Stern told the Senators that the costs of inaction in dealing with global warming far exceeded, by at least 5 times, the cost of dealing with global warming today.
Stern was a tough witness, taking everything the Senators threw at him and swinging back with the confidence of someone in complete control of one of the most complex problems on the planet. He deftly demolished bipartisan attacks on China and India as global warming spoilsports. More worrisome was Stern’s agreement with the Senators that coal was critical, despite the absence of technology that can sequester CO2.
The big question left hanging at the end of the hearing was whether Congress, an unwieldy beast even on its best days, can cobble together legislation flexible enough to cope with the dynamic challenges of global warming. See below for a complete report on the hearing.
Crossposted from Post Carbon Institute's Global Public Media.
Tuesday was another climate change trifecta at the U.S. Congress, with one hearing in the House on "Addressing Climate Change," and two in the Senate, onea report from the U.S. Climate Action Partnership Report," and one featuring Sir Nicholas Stern, author of the last fall’s highly influential Stern Review of The Economics of Climate Change. All three hearings went off at 10 A.M.
I decided to bet on Sir Nicholas, and headed to the Senate Energy and Commerce Committee hearing, where Committee Chair Jeff Bingaman (D-NM) cited the trifecta as evidence that the "ground in the U.S. [on climate change] has shifted substantially...I believe there is an opportunity to move forward this year."
The Stern Review is some 700 pages long, and was released on October 30, 2006. You can find the executive summary here, or download the entire Review for free. The main page also includes links to other supporting documents, including three recent papers responding to criticisms of the original release.
In listening to the exchanges between the Senators and the three witnesses (Stern and two academic economists), three points stand out:
First, both Republican and Democratic Senators raised questions about whether we should be spending more time worrying about adapting to climate change than mitigating it.
Second, members from both parties suggested that China and India were irresponsible members of the global community because they were not taking climate change seriously, a reason to question whether the U.S. should take any major steps to reduce carbon emissions without the participation of the world’s two largest nations (by population).
Third, the Congress of the United States, with its multiple overlapping committee jurisdictions and two very different bodies is going to be sorely pressed to come up with legislation that will create the innovative, flexible, dynamic framework that Stern says is needed to deal with climate change.
The Stern Review—Inaction Costs Much More
Sir Nicholas Stern’s report, the Stern Review of the Economics of Climate Change, broke new ground by making the best possible estimate of two critical costs:
What will it cost to deal with climate change now?
What will it cost if we do NOT deal with climate change now?
The Stern Review concluded that the cost to the world economy for dealing with climate change now would be 1% of the global domestic product.
But the cost of NOT dealing with climate change now was considerably higher, at least 5%, and perhaps as high as 20% of the global domestic product.
For opponents of action, Stern’s findings show a nasty paradox: far from choking off economic growth, the failure to deal with global warming now will, in and of itself, cause a much greater decline in economic growth in the future.
Armed with these findings, Stern argued strenuously for undertaking a whole series of measures to mitigate the rise in carbon emissions, with the goal of capping the level of carbon dioxide) at 550 parts per million (ppm). The level currently stands at 430 ppm, compared with only 280ppm before the Industrial Revolution. Stern noted that his findings coincided with those recently released by Working Group I of the Intergovernmental Panel on Climate Change.
"The Biggest Market Failure the World Has Ever Seen"
One of the most striking phrases in Stern’s presentation was his description of climate change as "the biggest market failure the world has ever seen."
Committee Chair Jeff Bingaman (D-NM) asked Stern to lay out the case for this categorical claim. How was this failure different from previous market failures? Stern noted that the range of consequences of this market failure involved every industry and every person on the planet. And the potential scale of damages for inaction was so huge.
Needless to say, conventional economists were less than pleased with Stern’s effort, since he was willing to bring into his analysis many "non-market effects" that conventional economists ignore, like the loss of endangered species. The two economists who testified today were both distressed with various aspects of Stern’s economic methodology, although not to the point of throwing the whole Review out the window.
It’s true that Stern’s results are based on a series of complex models in which his assumptions about key indicators would shift the final results.
But as Stern noted, all of his assumptions are out on the table for economists and others to challenge and debate. In the meantime, his work is the most comprehensive to date, and there was little doubt that his conclusions were pointing in the right direction, despite squabbles over the exact numbers. (One of the witnesses quipped that Stern’s Review had created "a full employment policy for economists" writing critiques.)
Adapting to Climate Change?
Both Republican and Democratic Senators raised the question of whether we should be paying more attention to adapting to climate change. Republican Senator Pete Domenici (R-NM) touched on the issue in his opening remarks, and returned later on to note:
"I am very pleased to see that you have talked about adaptation....I believe an adaptation policy is in order."
There is a very slippery slope here. Stern agreed that because the climate is already warming, and will get warmer still, we will have to develop methods for adapting to the changes that we have already induced. But adopting adaptation could also become an excuse for giving up on serious efforts to reduce carbon emissions. Stern emphasized over and over the importance of what he called "ambition" as the key to success in implementing carbon reduction policies. As for adapting to ever increasing temperatures, Stern said assuming humans could make such changes was "reckless."
Big Bad India and China
Senator Domenici (R-NM) went right after China and India in his opening statement. As he learned more and more about climate change, Domenici said:
"I grow more and more fearful in the passage of each month of what’s going to happen to our country and nothing significant is done with respect to China and India. Somebody in a big leadership has to get together with the Chinese and the Indians and decide if they have a stake."
Domenici then ran through a series of statistics about Chinese coal use:
- China uses more coal than the U.S.,
- Coal consumption is up in China 14% for the last two years.
- Every week to 10 days, China opens another coal fired plant big enough to power Dallas or San Diego.
Stern handled Domenici gently, explaining that he and his team had spent time in China and India preparing their report. In both countries, officials condemned the United States for not doing enough to stop climate change. Stern said that he had to remind people over and over again that in fact a lot was happening in the U.S., like California’s new law, AB 32, to cut carbon emissions.
Stern then turned the tables, telling the committee that he wanted to emphasize how much China, and to a lesser extent India, was already doing. China is no longer deforesting, he said, they’re reforesting. The government has adopted a goal of a 20% reduction in energy intensity within 5 years. And they’ve put a special export tax on energy intensive goods like steel.
Senator Byron Dorgan (D-ND) was not buying Stern’s assurances about China and India. Listening to Stern, Dorgan said, he found himself "muttering under my breath, I hope so." Dorgan then laid out his belief that there was a "natural tension" built into the global economy that favored U.S. jobs migrating to China and India, not just for cheap labor, but for less regulation. The countries might have regulatory laws on the books, but they didn’t enforce them, Dorgan said.
Stern replied that what he meant to impart about China and India was "the direction of movement. They both realize that global warming really matters to them....It’s movement in the right direction."
As to whether U.S. companies were moving to China and India because of weak regulations, Stern said his group had looked at this question of the migration of jobs explicitly in chapter 11. The cost of dealing with global warming was only 1%, a very small amount in comparison to wage rates, where wages could be 5, 10, or even 15 times cheaper. The extra cost was so small that he doubted it would be enough to cause a company to move, except in a few very energy intensive industries (steel, aluminum, cement) where countries might need to work out industry-by-industry agreements to regulate job migration.
Dorgan was not to be satisfied. He closed by saying, "I would only observe that the agents of production have always resisted additional regulations. Most of what we’ve achieved through regulation has been over the objection of very substantial industries." He cited a story from the President of the Philippines, who one day mentioned increasing the country’s minimum wage. The very next day, according to Dorgan, representatives from a major U.S. company were in the president’s office, telling him that if he increased the minimum wage, the company would leave the Philippines
Coal, Coal, and More Coal
Stern, the other witnesses, and the Senators of both parties were all in agreement that we would be relying more and more on coal as an energy source. This conclusion rests on a rather frail assumption: that we are going to quickly discover low-cost methods for sequestering carbon from coal-burning processes, piping the CO2 to some underground cavern where it will remain and not leak out into the atmosphere.
Senator Dorgan talked about a plant in North Dakota that makes synthetic natural gas from lignite coal. The CO2 from this process is piped to oil fields in Alberta, Canada, where it is injected into marginal oil wells, increasing the flow of oil from those wells while isolating the CO2 underground.
But as Stern noted, we need far more research and development on carbon sequestration. At this point, no one knows whether it will be possible to develop such technology.
Can Congress Write a Dynamic Law?
The Senators spent a fair amount of time reviewing various options with the witnesses. In an almost plaintive way, they kept asking about this option or that, as if there were a single policy. Stern and the two economists, on the other hand, emphasized over and over again that the best approach would combine regulations with carbon taxes with cap-and-trade markets in carbon. Both economists emphasized how unfortunate it was that Congress was so tax-averse, given that carefully targeted taxes were a great fiscal tool for steering investments.
The witnesses also emphasized the importance of having a policy in the first place, any policy almost, in order to create the kind of stable, medium-long term time frame which businesses need in order to make substantial investments. But even here, Stern noted that it was impossible to write climate policy in 2007 that would be valid for a whole century. Whatever Congress did would have to allow for regular course corrections, as we learned which policies worked well, and which did not.
Stern also strongly urged the Senators to write legislation that would allow whatever the U.S. did to link up with similar mechanisms in the EU, and eventually with China and India. The EU already has a cap-and-trade system in place.
In conclusion, Stern said he never intended his report to be the last word, and welcomed the questions and attacks that the release of the report had generated. At the start of the hearing, Bingaman said he was optimistic that Congress would pass climate change legislation this year. After listening to this hearing, I feel less certain that Congress can meet such a challenge.
****
You can watch a video of the entire Stern hearing on the Committee for Energy and Natural Resources archive page.
For an extended interview with Sir Nicholas Stern on the Stern Review, click here.