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Introduction

Many economic models exist to estimate the cost and effectiveness of different policies for reducing greenhouse gas (GHG) emissions. Some approaches incorporate rich technological detail, others emphasize the aggregate behavior of the economy and energy system, and some focus on impacts for specific sectors. Understandably, different approaches may be better positioned to provide particular types of information and may yield differing results, at times rendering decisions on future climate change emissions and research and development (R&D) policy difficult. Reliable estimates of the costs and benefits to the U.S. economy for various emissions reduction and adaptation strategies are critical to federal climate change R&D portfolio planning and investment decisions. At the request of the U.S. Department of Energy (DOE), the National Academies organized a workshop to consider these issues.

A planning committee was appointed by the National Research Council to organize the workshop and moderate discussions. Richard Newell (Duke University), Marilyn Brown (Georgia Institute of Technology), John Weyant (Stanford University) and Paul Joskow (Alfred P. Sloan Foundation) worked with National Academies staff to organize the two-day event in Washington, D.C. The workshop was structured to encourage discussion of key policy questions, modeling approaches, assumptions, and uncertainties, to help clarify some of the debate, identify opportunities for advancing the capacity for economic analysis of climate policies, and assist the U.S. Climate Change Technology Program (CCTP) in guiding future investments in the U.S. federal R&D portfolio.

As planning committee chair Richard Newell put it, the workshop comprised three dimensions: policy, analysis, and economics. Discussions along these dimensions were meant to lead to constructive identification of gaps and opportunities. The workshop focused on (1) policymakers’ informational needs; (2) models and other analytic approaches to meet these needs; (3) important economic considerations, including equity and discounting; and (4) opportunities to enhance analytical capabilities and better inform policy.

Robert Marlay, deputy director of the CCTP, explained that both the DOE and the broader CCTP are interested in building analytical capacity to help understand and inform complex decisionmaking around climate change policy. The CCTP covers 13 agencies engaged in facets of climate change, all interested in this discussion on how to assess the economic impacts of various policies, what the limitations are of these assessments, and what economics more broadly can tell us about how effective policies might be designed. He noted that, from a policymaker’s point of view, recent economic analyses of the Lieberman-Warner bill, for example, have yielded results that vary by more than an order of magnitude, which is confusing to those not familiar with the process of modeling for these sorts of bills. Several modelers and analysts responded to this point and explained that these apparently disparate results, when controlled for certain variables, yield a tighter distribution of results than what is conveyed to the lay person. Thus, a theme that emerged early in the workshop is that modelers need to give more careful consideration to how their different results compare, and how that is communicated to the public.

Marlay also remarked that the questions being asked of policymakers are also requiring information at increasing levels of detail, going far beyond simple macroeconomic impacts. Specifically, such questions indicate interest in modeling results for specific industries or economic sectors. Legislators are seeking information on impacts at a state or even district level, and also among different income levels within a population. Still others are interested in impacts across countries, and the implications for



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1 Introduction Many economic models exist to estimate the cost and effectiveness of different policies for reducing greenhouse gas (GHG) emissions. Some approaches incorporate rich technological detail, others emphasize the aggregate behavior of the economy and energy system, and some focus on impacts for specific sectors. Understandably, different approaches may be better positioned to provide particular types of information and may yield differing results, at times rendering decisions on future climate change emissions and research and development (R&D) policy difficult. Reliable estimates of the costs and benefits to the U.S. economy for various emissions reduction and adaptation strategies are critical to federal climate change R&D portfolio planning and investment decisions. At the request of the U.S. Department of Energy (DOE), the National Academies organized a workshop to consider these issues. A planning committee was appointed by the National Research Council to organize the workshop and moderate discussions. Richard Newell (Duke University), Marilyn Brown (Georgia Institute of Technology), John Weyant (Stanford University) and Paul Joskow (Alfred P. Sloan Foundation) worked with National Academies staff to organize the two-day event in Washington, D.C. The workshop was structured to encourage discussion of key policy questions, modeling approaches, assumptions, and uncertainties, to help clarify some of the debate, identify opportunities for advancing the capacity for economic analysis of climate policies, and assist the U.S. Climate Change Technology Program (CCTP) in guiding future investments in the U.S. federal R&D portfolio. As planning committee chair Richard Newell put it, the workshop comprised three dimensions: policy, analysis, and economics. Discussions along these dimensions were meant to lead to constructive identification of gaps and opportunities. The workshop focused on (1) policymakers’ informational needs; (2) models and other analytic approaches to meet these needs; (3) important economic considerations, including equity and discounting; and (4) opportunities to enhance analytical capabilities and better inform policy. Robert Marlay, deputy director of the CCTP, explained that both the DOE and the broader CCTP are interested in building analytical capacity to help understand and inform complex decisionmaking around climate change policy. The CCTP covers 13 agencies engaged in facets of climate change, all interested in this discussion on how to assess the economic impacts of various policies, what the limitations are of these assessments, and what economics more broadly can tell us about how effective policies might be designed. He noted that, from a policymaker’s point of view, recent economic analyses of the Lieberman-Warner bill, for example, have yielded results that vary by more than an order of magnitude, which is confusing to those not familiar with the process of modeling for these sorts of bills. Several modelers and analysts responded to this point and explained that these apparently disparate results, when controlled for certain variables, yield a tighter distribution of results than what is conveyed to the lay person. Thus, a theme that emerged early in the workshop is that modelers need to give more careful consideration to how their different results compare, and how that is communicated to the public. Marlay also remarked that the questions being asked of policymakers are also requiring information at increasing levels of detail, going far beyond simple macroeconomic impacts. Specifically, such questions indicate interest in modeling results for specific industries or economic sectors. Legislators are seeking information on impacts at a state or even district level, and also among different income levels within a population. Still others are interested in impacts across countries, and the implications for 1

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material and trade flows. Finally, he noted that policymakers are interested in the degree of confidence placed on the estimates they are seeing. The DOE recently completed a survey of existing analytic tools, focusing specifically on the technology and economic models in current use both domestically and internationally. Marlay remarked that the models are providing insight into potential costs but that much less information was being generated about the various courses of action and potential benefits. Specifically⎯and this point is important to policymakers⎯there has been less consideration of the tradeoffs among mitigation, adaptation, and inaction. Participants recognized that an array of tools will be needed to develop climate change policy, and were challenged throughout the workshop to identify potential gaps and areas for improvement within the current suite of models and analytic tools. Given the anticipation that a new U.S. administration will be calling for information to help make decisions on legislation, inform international negotiations, and design multibillion dollar R&D programs, this workshop was intended to identify some of the key challenges posed for improving this information, specifically with regard to assessing economic impacts. Marlay informed participants that the CCTP intends to form partnerships with strong analytical elements of each participating agency within the CCTP, and that the work would not or could not be left to just one agency. The CCTP will then make additional investments to strengthen these existing tools, and so he expressed hope that this workshop would help define the frontier of climate economics analysis and push it forward. The following four chapters summarize what transpired during the four panel discussions and highlight their major themes. 2