Changes in Carbon Pricing Won’t Stop Global Warming

Under current economic and political conditions, using carbon pricing to effectively address world climate change is unlikely, said Michael Greenstone, professor of environmental economics at MIT. “In my heart, I still believe in prices as a solution to almost all problems, but counting on the global carbon market is not the most likely way to deal with what I believe is the challenge of our generation,” Greenstone said.

Five important facts suggest the United States should at least slightly alter current policy regarding climate change, he said during a Myron Scholes Global Market Forum, sponsored by the Initiative on Global Markets, at Northern Trust in Chicago on March 4. Among those facts, Greenstone said, are:

• Temperatures are expected to rise dramatically if we continue on our current path. “Scientists believe a rise of more than 3.6 degrees Fahrenheit is where some of the catastrophic things could happen,” he said. “We will be above that in a couple of years.”
• Stopping climate change, or the rise in temperature, will be extraordinarily expensive. “Technology has not yet provided a cheap, large-scale solution to decreasing emissions,” Greenstone said. “Developing countries such as China and India seem to have little interest in abandoning their coal reserves.”
• Stopping climate change will require tremendous reductions in emissions of greenhouse gases, especially in developing countries. “The growth is going to really come all from India and China, which will increase greenhouse gases by 50 percent in the next 20 years,” he said.
• Developing countries are very poor and it’s “almost unreasonable” to think they will focus on anything other than income growth in the foreseeable future. Per capita income is $46,443 in the U.S., $6,546 in China, and $2,932 in India, while carbon dioxide tons per capita is 19, 5, and 1.3, respectively, in each, Greenstone said.
• Despite its ballyhoo, the Copenhagen Accord is worse than it seems. China and India promised only to reduce carbon emissions per GDP units and at rates they already have achieved, he said. “Monitoring emissions anywhere is difficult, because we don’t have the technology to do it yet,” Greenstone said.

Fossil fuels remain the cheapest form of energy and highly abundant, Greenstone said. Confronting climate change will require geo-engineering or dramatic changes in sources of energy, he said. Pricing carbon emissions is the best solution, but unlikely in the foreseeable future, Greenstone said.

“A domestic price on carbon in the U.S. would help, but it might not provide sufficient incentives,” he said. “It might just simply lead us to switch from coal to natural gas, and it wouldn’t produce the technology that’s really going to be necessary to get emissions under control in other parts of the world. New technologies are necessary.”

Greenstone’s three policy recommendations are:

• Make the development of an effective monitoring system the top priority. “Roughly speaking, any system must know who is emitting what when,” he said.
• Consider concerted research and development for low carbon energy sources, carbon capture and sequestration, and geo-engineering techniques.
• Don’t give up on the global carbon market for carbon price emissions, but don’t continue focusing on it as the primary solution.

Phil Rockrohr