UNDERSTANDING THE ECONOMICS OF CLIMATE STABILIZATION

Effective policy to reduce the expected rate of global temperature change this century will require large-scale cuts in emissions of CO2 and other global warming gasses, in developed countries on the order of 20% per decade from 2020-2050. Climate policy discussion is generally focused on the need for legislation capping global warming pollution in the near term, and then requiring steep reductions by mid-century. The first task, stabilizing emissions over the next few years, can be done using known technologies at relatively low cost. But subsequent cuts will require a whole suite of commercial clean energy solutions—for example, solar cells, solar thermal power, fuel cells, battery and other storage technologies, biofuels from cellulosic and other non-food crops, high altitude wind, tidal power, geothermal power. These technologies are currently not cost competitive beyond small market niches.

This paper reviews the case of wind power to illustrate (1) how new technologies can achieve rapid commercialization, providing a new base for economic growth and employment, and also (2) to suggest the magnitude of investment across the spectrum of solutions that will be required today to enable steep domestic cuts by 2050.

From a classroom perspective, global warming challenges the conventional economic view that the correct policy is for government to “get the prices right” and then step out of the way. High energy prices alone will be insufficient to drive the rapid technological innovation that today's students will require. Instead, as a complement to “price policy” (carbon taxes or a cap & auction system), government must also employ “innovation policy” tools, including enhance R&D spending, efficiency standards, and other mechanisms.