Economic Impact Of California Climate Plan In Line With Stern Report


The Electric Power Research Institute (EPRI) has released the results of an analysis that shows that California can achieve its goals of reducing greenhouse gas emissions to 1990 levels by 2020. "Depending on how California implements its climate legislation, cumulative real costs to the state's economy range from 0.2 percent to 1.2 percent ($100 billion to $511 billion) through 2050. In general, costs increase as limits on California's future greenhouse gas become more stringent, the report says. For the analysis, EPRI integrated two widely-accepted, advanced economic models: the state-level Multi-Region National (MR) model and a detailed model of the U.S. electricity sector, the North American Electricity and Environment Model (NEEM). The California Environmental Protection Agency and the Air Resources Board are currently using this new EPRI modeling tool for informing their climate implementation work...The EPRI analysis reviewed 20 different policy implementation scenarios, and demonstrated that implementation options based on a broad, market-based cap-and-trade program will likely be more cost-effective than a sector-specific program of command-and-control regulations, or an approach that covers only one part of the state's economy. Several key issues were highlighted for further study, including leakage of emissions to nearby states, the role of forestry offsets, and the role of electrification as a method for reducing greenhouse gas emissions across the economy." The European Commission-sponsored Stern Report, you may recall from earlier postings here, last year concluded that the adverse impact of combating moderate climate risk, globally, would be of a similar in order of magnitude (we're bracketing loosely around one percent to make a political point here). However, the Stern Report went beyond the single case that EPRI is reporting on for California only, pointing out that ignoring climate change as a driver of the future global economy-- commonly these would be described as the global no action alternative, the ostrich maneuver , or the business-as-usual case -- would have much worse adverse economic impacts. Regardless of whether the similarity in order of magnitude for these two reports [Stern's and EPRI's] is meaningful or coincidental, and regardless of whether or not it is useful to compare a global to locally projected impacts, the similarity has the unconscious effect of establishing a benchmark for we non-economists. Which we hail as helping to overcome the onerous impact screamers that we will be hearing from during forthcoming US Congressional energy and climate bill testimony.

A summary of the EPRI analysis may be downloaded as a pdf file here. It does not appear that a full version of the report is publicly available at this time; although access could be limited only based on a mis-tagging of files on the EPRI website.

Key Points of the Analysis

* Broad, market-based programs are projected to be more economically efficient than sector-specific or command-and-control options

* Under a market-based program, the electric sector provides approximately 55% of the GHG reductions needed to achieve the state CO2 constraint. At the same time, electricity also provides more of the state's primary energy in the future.

* Policy selection is important to minimizing the impact to the California's economy. The analysis does show a potential cost to the states consumers ranging of -0.2% to -1.2% ($100 — 500 billion net present value from 2010 to 2050), depending on climate policy implementation. To place the dollar figures in context, the state will generate $43,700 billion in consumption net present value (NPV) over the same period.

* Leakage, offsets, and a "safety valve" are all critical issues that warrant further study.


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