that the first task would be to streamline siting, permitting, and transmission access. He also remarked on the numerous marginal cost curves that have shown negative costs, for electric utilities, industries, and the transportation sector, many of which represent efficiency opportunities. However, Weyant offered two cautions about these: (1) they generally use one baseline and so may be too simplistic, and (2) we do not fully understand the potential for decoupling in the electricity sector, and many of the efficiency opportunities seem to depend on decoupling being widely adopted. Despite these uncertainties, though, Weyant contends that it is possible to put rough bounds on policies and then rank them to aid policymakers.

Weyant went on to caution that policymakers should not, in an area with great complexity and uncertainty such as climate change, always opt for the solutions coming from a deterministic and long-term model, as these are likely to leave out important factors as time unfolds. Instead, it would be wise to do what is known to be necessary, and scale up or replicate what works and eliminate what does not. This also makes the case for taking action on the negative cost and other low-cost options immediately instead of delaying all action until there is wider agreement on an optimal stabilization number.

Richard Bradley spoke extensively about the important issue of capital turnover. He noted that policymakers and energy investors tend to have short time horizons (20-30 years)—an important point to keep in mind because, in the energy sector, capital turnover is going to be a critical issue and will need to occur on an enormous scale. Modeling microeconomic behavior could help answer questions about facility refurbishment and tear-down. An IEA study examining the role of carbon price in the timing of investments suggested that energy price uncertainty dominates carbon price uncertainty, save for a few sets of technologies (IEA, 2007). One of the most important actions a government can take, in that regard, is to extend commitment periods (e.g., from 5 to 10 years). IEA’s analysis indicated that after about 15 years, investors were less concerned. Another important consideration, he said, is that no matter what becomes of power plant sites, energy investors do not easily relinquish the sites because they have already passed local ordinances, shortening the investment period for new construction. The reality, however, is that as fossil fuel plants close, the sites will not automatically be turned over to plants for generating power from renewable resources, due both to resource location and the anecdotal evidence that new technologies move into new demand areas as opposed to replacing existing demand.

Discounting

Bill Cline, Dimitri Zenghelis, and Bill Nordhaus all explained that the discounting rate one uses when making estimates has a large influence on estimated costs of mitigation. Cline remarked that in many climate change analyses, the cards are stacked against aggressive action based on the discounting rate chosen more so than by the adoption of modest damage estimates. He believes that the problem should be analyzed on a time scale of at least two centuries—discounting over this time frame has an overwhelming influence, and so he recommended opting for the social rate of time preference. Evidence suggests that an elasticity of marginal utility of 1.5 is close in conformity to what is observed in tax structures. He provided the caveat that one needs to shadow the price of capital when taking this rate, but his bottom line was that for about a half a percent of world product over the next 50 years we can purchase an insurance policy that leads to something close to two degrees of warming. This, he concluded, is a “cheap price for climate insurance.”

Zenghelis explained the issue in terms of risk and value judgments. The important analysis now is in looking at how to apply conclusions in developing a global response effectively, so that it reduces risk efficiently, cost effectively, and equitably, so that parties are less likely to reject any sort of deal. One important value judgment is how to value people of different incomes across time and space—the intuition behind this is something that ought to be accessible to policymakers, not simply reduced to economics jargon. We know we value an impact on low-income people more than wealthy people, and this has consequences in terms of how one assesses risk. If one is risk averse, then more emphasis is placed on catastrophic impacts—the Stern Review used multiple discount rates to reflect different levels



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