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“Too Much Pessimism about the Paris Climate Agreement” by Robert Repetto

Submitted by EFC Team on December 18th, 2015

The author, Robert Repetto, is an economist and Senior Fellow at the UN Foundation. The views are not meant to represent the position of the Energy Future Coalition. 

The Paris Climate Agreement has been met with too much pessimism. True, the pledged emission reductions get only halfway to the level that would keep warming below two degrees C., and China and India didn’t agree to reduce their emissions any time soon, Many economists and other observers also fear that without a binding legal agreement countries will not even fulfill their Paris pledges. They predict that many nations will choose simply to benefit from other countries’ efforts without themselves incurring any mitigation costs, causing the Agreement to collapse in a global tragedy of the commons.

This view is far too bleak. Countries are not the single-minded rational actors that game theories assume. They do engage in collective action, with or without treaties. Their positions on the climate issue – as on others – are determined by domestic and international interests, ideology and internal politics. Thus, for example, Canadian and Australian climate policies recently strengthened along with changes in their leadership, without any fundamental change in national interests in either country. Also, in most countries, power is shared by local, provincial and national governments, and some levels may act when others do not, More and more people around the globe now realize how serious the climate change damages they face really are, and students of government know that there are tipping points in politics, when what had been once unthinkable becomes a consensus.

China and India, the world’s first and third largest emitters of greenhouse gases, respectively, put their highest priority on economic growth and poverty reduction, but the ambitious growth projections on which their future energy demands are based are only aspirational. The OECD forecasts their growth rates falling by half in coming decades, In China, the pool of low-wage workers is exhausted, and the legacy of the one-child family is constricting labor supply. It’s no longer possible to grow rapidly by exploiting ready-made Western technologies with cheap labor. Moreover, structural change away from heavy industry and infrastructure investment and toward consumer goods and services implies a reduction in the extreme energy intensity of past growth. China now uses twice the energy per dollar of GDP as the US does; India is almost as high; but that is improving rapidly in both countries. The combination of lower growth rates and lower energy intensity will significantly reduce the future growth in energy demand, even before mitigation policies take hold.

Beyond that, India, China and other developing countries will move rapidly toward clean energy because doing so will be less costly than the alternative, both politically and economically, even aside from climate damages. Inefficient, dirty coal-fired power, biomass burning, and highly polluting vehicle engines have created intolerable levels of air pollution. In Beijing and Delhi, as well as in other cities, pollution levels have increased rapidly over the past decade and are now as much as 30 times worse than what the WHO considers hazardous. The human costs include more than a million premature deaths per year in each country and surging rates of cardiovascular disease, asthma and other respiratory diseases. Unlike global warming, which is hard to see, air pollution is all too obvious and has become a burning political issue in these countries that their governments will have to address by switching to cleaner energy sources.

In economic terms, studies by the International Monetary Fund have shown that air pollution health damages amount to several percent of GDP in both countries, negating much of recorded economic growth. Elevated levels of ozone and black carbon aerosols, both short-lived greenhouse gases produced by combustion, are also reducing yields of wheat, rice, and other major crops by 10 to 25 percent, exacerbating the effects of climate change and undermining efforts to increase food supplies. When these costs are factored in, along with the high costs of inefficient coal-fired electricity systems, wind and solar power are already more economical. The costs of wind, solar and energy storage have fallen dramatically in recent decades and are expected to improve further. Both India and China have greatly expanded investments in renewable energy and will continue to do so.

Even in the U.S., studies find that newly required air pollution controls make most existing coal-fired power plants uneconomic. Factoring in the carbon costs that are implied by EPA’s Clean Power Plan, more than 75 percent of existing coal-fired plants will be more costly to run, compared to alternatives.

India claims that its need to reach the hundreds of millions of people now without access to modern energy services justifies its continued rapid emissions growth. However, over the past three decades, more than 650 million people gained access to electricity, but this accounted for less than 5 percent of the increase in India’s electricity demands over the period. Most of the subsidies for kerosene and diesel fuels intended for the poor have actually been captured by people who are better off and could be re-purposed to support clean energy. It will be more economical to provide energy to rural communities through community-scale solar and wind, rather than extending the grid from inefficient central power plants, given that transmission and distribution losses equal 15-17% of generation. Investment in community-scale micro-grids is growing rapidly, allowing clean electricity to replace kerosene lighting and biomass cooking, major sources of black carbon and severe threats to health.

India and China, like many other developing countries, have enormous solar and wind potential. A recent study in India found that using just 3 percent of wastelands for solar power would be enough to generate 750 GW, three times India’s current installed capacity. Estimated wind potential exceeds 300GW, more than half on uncultivated wastelands. In addition, cooperative projects with Nepal to bring hydropower down from the Himalayas into Northern India could supply an additional 40GW of very useful hydropower.

The cheapest energy source by far in India, China and elsewhere is improved efficiency, A study by McKinsey & Co. estimated that 30 to 40 percent of India’s emissions could be eliminated by measures that actually save money. Simple end-use efficiency measures such as improved lighting provide an enormous five-fold bonus because the electricity generation fleet is so inefficient – about 33% – and the losses in transmission and distribution are so high – about 17%: A kilowatt-hour saved eliminates 5 times as much primary energy. A comparable McKinsey study for China also found cost-saving emissions reduction opportunities with existing technologies for about 30 percent of 2030 emissions. These efficiency opportunities have the additional bonus of reducing air pollution from fossil fuel combustion.

Finally, carbon pricing already covers 40 percent of the world’s emissions and is spreading to other jurisdictions. Past experience clearly shows that such market incentives result in faster and cheaper abatement and intensified innovation. With appropriate policies, the reduction in global emissions is likely to proceed through 2050 at a faster pace than implied by the Paris pledges. Governments have been careful not to over-promise initially. As countries review and update their commitments every five years, they will probably find that the costs of lowering their emissions are falling while the damages from climate change are rising – and then they will accelerate their transition.

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