pa1627c.jpg Paul Lachine

Testing the Limits of Fossil Fuels

MILAN – Most people recognize that human activity, primarily the use of fossil fuels, is contributing mightily to an increasing level of greenhouse gases in the atmosphere. These gases, particularly CO2, increase the risk of damage to the world’s climate. This means that limits on our consumption of fossil fuels cannot be measured only by the availability of supplies, but must also take account of the environmental costs.

Yet considerable uncertainty remains about the magnitude of the impact of rising levels of atmospheric greenhouse gases on temperatures and climate. This uncertainty must be taken seriously when formulating strategies to combat climate change.

The high-growth developing countries – Brazil, Russia, India, China, and others in the G-20 – now include more than half the world’s population. If they continue their current strong growth trajectories, as seems likely, they will approach advanced-country levels of income by mid-century or shortly thereafter.

At that point, the part of the world’s population with advanced-country income levels ($20,000 dollars or above in today’s dollars) would increase from 16% to 66%. And, if the newly affluent follow the patterns of consumption, energy use, and carbon emissions that accompany high income levels now, the climate change battle will have been lost.

Emissions and natural processes that increase atmospheric carbon are known as “flows.” Mitigation attempts to reduce these flows and thus reduce the rate of increase of the stock of carbon in the atmosphere, with the ultimate goal of stabilizing or reducing it to safe levels. Without mitigation, and assuming that the high-growth developing countries reach current advanced-country levels of annual per capita CO2 emissions (10 to 11 tons, though much higher in North America), the current global average of 4.8 tons will almost double in 50 years, to 8.7 tons.

This compares poorly with the most recent estimate of a reasonably safe level of CO2 emissions calculated by the United Nations Intergovernmental Panel on Climate Change. To prevent further climate change, the IPCC believes, emissions should be brought down to 2.3 tons per person globally, or roughly half the current per capita average, in the next 50 to 75 years. On our current course, without a significant mitigation effort, by mid-century we would be at around four times the safe level.

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Advanced countries have been the biggest sources of carbon emissions until relatively recently. But energy consumption – and thus carbon emissions – rise with per capita income. China and India, which account for 40% of the world’s population, were recording 9-10% annual GDP growth before the financial crisis hit in 2008 and are likely to resume rapid growth in the post-crisis period, meaning that their economies will double in size every 7-10 years. Their contribution to total emissions will rise accordingly.

Other economies are growing at relatively high rates, too. As a result, while many advanced and developing countries are pursuing far-reaching measures to increase energy efficiency and adopt clean-energy technologies, their existing technologies, incentives, regulations, and commitments imply a sharp rise in total carbon emissions in the coming decades.

Despite the IPCC’s target for annual per capita CO2 emissions, we still do not know how much warming various levels of greenhouse gases in the atmosphere will cause. The estimated ranges vary widely, even after a quarter-century of scientific effort, owing to the complexity of the environment itself. This is one reason why successful mitigation at the global level faces stiff headwinds.

Indeed, it is not reasonable to expect that any country, rich or poor, should set or agree to 50-year targets. Given the structure of the problem – sequential decision-making with uncertainty about all the relevant parameters (including costs, the efficient pattern of mitigation, and technology) – it would be wiser to adopt a more flexible strategy that provides incentives and regulations to achieve measurable intermediate progress, while generating a lot of useful information along the way.

In other words, we should focus our efforts on a shorter time frame, say, the next 15 years. In the long run, success will require major technological advances and their broad adoption. As these are still unknown today, the initial challenge will be to jump-start the mitigation and learning processes, and create powerful incentives for technology that will increase energy efficiency and reduce CO2 emissions in the long run.

Acting now can be thought of as buying what financiers call “tail insurance” – some protection against the most adverse among all the possible outcomes. The question is what kind of action we should take. Because combating climate change entails making decisions at different points over a long period of time, a key aspect to addressing the problem is to recognize that as stocks of greenhouse gases rise, we will learn more about the distribution of possible outcomes.

This is why delaying the adoption of long-term targets is not a recipe for business as usual. On the contrary, as the possible outcomes become clearer, we will almost certainly face the need for serious and costly reductions in energy use, at least among the advanced countries, as well as costly technological advances designed to make energy use more efficient in both the advanced and developing world. This will surely involve sharp cuts in the consumption of fossil fuels, bolstered by taxes and other restrictions.

No one should expect that the costs of combating climate change will be low. But those costs will have a significantly higher expected value if we do not adopt sensible global strategies that include adjusting our mitigation efforts in response to new information.

Figure 1. CO2 Emissions per Capita

Source: IPCC and Human development report 2007/2008 (UNDP)

Figure 2. Total Global Emissions (Gigatons)

Source: Author’s calculations

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