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As global leaders prepare to gather for the Rio+20 sustainable development summit in Brazil next week, the International Monetary Fund (IMF) and a collection of economists from MIT and other organizations has released a report to help leaders confront the price tag associated with climate change. The publication— Fiscal Policy to Mitigate Climate Change: A Guide for Policymakers—details the most effective methods to reduce emissions and contain costs, namely through carbon pricing.

Until now, leaders have focused on slowing warming to 2 degrees Celsius to prevent catastrophic changes associated with climate change. Because this would mean taking drastic measures to hold emissions at about today's levels, researchers at MIT argue that leaders should be realistic and start smaller because the time to act is quickly running out. Their research—Emissions Pricing to Stabilize Global Climate—is a chapter within the IMF guide.

“Negotiations on the exact emission reduction target have been going on for a long time without much substantial progress,” says Sergey Paltsev, lead author of the MIT study and associate director for economic research at the Joint Program on the Science and Policy of Global Change. “But it is better to start with some policy that reduces emissions because even a small initial step is important as it sets the process on track.”

IMF’s Managing Director Christine Lagarde points to a tax or trade system.

“Perhaps we can help with a simple concept that everybody can understand—getting the prices right,” Lagarde said in a speech at the Center for Global Development. “Getting the prices right means using fiscal policy to make sure that the harm we do is reflected in the prices we pay. I am thinking about environmental taxes or emissions trading systems under which governments issue—and preferably sell—pollution rights.”

The MIT research suggests an emissions price—organized through either a tax or cap-and-trade system—of about $20 to $40 per ton by 2020 to help the world community reach less stringent targets that would keep warming to 2.9 or 3.6 degrees Celsius.

“These less stringent targets are more realistic and reachable, and they still reduce the risk of more severe climate impacts,” Paltsev says. But, he warns, “we have never experienced such changes and do not know exactly how the Earth will respond, so the smaller the changes we make, the greater the risk of something unexpected and bad happening.”

Still, making small changes is better than not acting at all, Paltsev says, and we shouldn’t wait for technology to fix the problem for us.

“We can wait for a miracle technology, like biofuels with carbon capture and storage, to appear and become economical— allowing us to reach more stringent target—but then we place our bets on something which may or may not materialize,” Paltsev says.

The longer the global community waits to take action, the higher the price tag could be and the less likely the world will be able to meet even less stringent targets. This could mean “unprecedented levels of damage and degradation” if current trends in production and consumption continue, United Nations Undersecretary General Achim Steiner said in a recent statement. He added, “The moment has come to put away the paralysis of indecision, acknowledge the facts and face up to the common humanity that unites all peoples.”

Andrew Steer, special envoy for climate change for the World Bank, agrees.

“We will turn the tide against climate change only when core economic policymakers wake up to the urgency of the issue and factor it into their fiscal and economic policies,” he said.

Making progress one step at a time

Even if all countries were able to agree on a uniform path forward, slowing emissions would require a complex burden-sharing system including incentives and compensation for emerging and developing countries—continuing an ongoing struggle about who pays what to confront the challenge.

While such an international effort may take time, the Green Climate Fund—formed in Cancun, Mexico, in 2010—could help developing countries. Meanwhile, major emitters like the United States, European Union and China could establish a relatively small carbon tax, the revenue from which could be returned to citizens to balance out the higher energy prices and increase public support. The idea is similar to parts of a proposal by U.S. Sen. Maria Cantwell (D-Wash.).

Still, cap-and-trade—a system invented by American economists—is far from being implemented in the United States, as countries around the world take steps to implement the system—like China.

“Just as many of our best innovations are produced in China, they may beat us in implementing such a system,” John Reilly, a co-director of the MIT Joint Program on the Science and Policy of Global Change and an author of the IMF chapter, said recently. "We're really being left behind.”

China is not the only country that has an edge on the United States. The EU, Australia, New Zealand and South Korea have already begun to set hard emission limits, and cap-and-trade programs are gaining traction in Brazil and Mexico as well.

Joëlle Chassard, manager of the Carbon Finance Unit of the World Bank, said in a statement that it was heartening to “see increasing interest in, and support for, new market-based mechanisms to mitigate climate change.”

Paltsev agrees that these systems are encouraging and useful, even at the local level. But, he says, “It is also important to harmonize the efforts” and “all major emitters, including the U.S., need to participate.”

Quito, Ecuador, is not considered a global leader by most measures. But there is one way in which Quito is at the forefront of metropolises worldwide: in planning for climate change.

As climate negotiators wrap-up talks in Bonn, Germany, this week, a major point of contention is who needs to do what to slow global warming. Nations such as China and the United States have held back from making substantial emission reduction pledges in the past, as both nations waited for the other to act. But new research out of MIT shows the importance of all major nations taking part in global efforts to reduce emissions—and in particular, finds China's role to be crucial.

The report—titled "The Role of China in Mitigating Climate Change"—published in the journal Energy Economics, compares the impact of a stringent emissions reduction policy with and without China's participation. It finds that China's actions are "essential."

"As the largest greenhouse gas emitter in the world, without China, climate goals—like the 2 degrees Celsius target that most agree is necessary to prevent serious irreversible consequences—are out of reach," says Sergey Paltsev, the lead author of the study and the assistant director for economic research at MIT's Joint Program on the Science and Policy of Global Change.

Specifically, the study finds that with China's help the global community is able to limit warming to 2 degrees Celsius, relative to pre-industrial levels. But without China, we miss that mark by about 1 degree Celsius.

Not only will it be close to impossible to achieve the 2 degrees mark without China's participation, but emissions reductions will also be more expensive because substantial costs would shift to only some countries. That is why the researchers argue for a global economy-wide greenhouse gas tax that spreads the burden of responsibility.

But even in this best-case scenario, reducing emissions comes with a steep price tag. China could experience substantial GDP losses by the end of the century under the most stringent policy cases. These losses come from higher energy prices, which influence consumption and export dynamics.

"While strong reductions may turn out to be costly in China and may require some incentives from developed countries," Paltsev says, "that doesn't make China's actions any less important."

The researchers stress, however, that reaching that 2 degrees threshold with China's participation is only possible in the most optimistic case. And these days, there isn't much cause for optimism.

The researchers tested various levels of emission reduction plans—a global carbon tax of $10, $30 or $50. The various taxes would slow warming to 3.5, 2.4 and 2 degrees, respectively, by the end of the century, according to their analysis. With no global policy, the increase in warming is projected to be about 5.5 degrees Celsius.

These scenarios show that, "Even more modest and realistic goals require near universal participation of major greenhouse gas emitters," Paltsev says.

Top energy user today, climate leader tomorrow?

The importance of China's participation in a global climate treaty increases with each year, as the country's population, economy and energy use continue to grow rapidly.

From 2000 to 2010, China's energy use grew 130 percent. That's up from a growth of just 50 percent the previous decade. With a growing, wealthier population, China has become the world's largest energy consumer—and with it, the world's greatest source of greenhouse gas emissions.

China's share of global energy-related CO₂ emissions has increased in just eight years from 14 percent in 2000 to 22 percent in 2008. Eighty percent of those emissions came from coal, making China the consumer of about half the world's coal.

But China is on a path toward doing something about their rapidly escalating energy use and emissions. They've recently announced they will be testing a pilot cap-and-trade program in select major cities in 2013, and plan to make the program national by 2015.

John Reilly, the co-director of the Joint Program on Global Change, pointed out recently the irony behind the plan. While the United States created the idea of cap and trade, he says, "just as many of our best innovations are produced in China, they may beat us in implementing such a system ... we're really being left behind."

Paltsev agrees that the system would be "a very good start" for China, allowing the country to reach its goal of reducing carbon intensity by 40 percent relative to 2005, and increasing the share of non-fossil fuels by 15 percent by 2020. But, he says, "these actions are still not enough, making almost no substantial difference in reducing global emissions."

In fact, the change, taken by China alone, would only reduce global temperature by about 0.1 degree Celsius in 2020.

But Tim Yeo, who chairs the United Kingdom Parliament's energy committee, recently told The Financial Times that if China did impose a national cap and trade system, "It's game over for the rest of the world ... Everyone will have to do it, including the U.S."

Paltsev agrees. "While the system would only be a start for China, as the country would still have a long way to go in reducing emissions, it would likely influence other countries—like the U.S.—to follow. But time is really of the essence."


To learn more about the Joint Program on Global Change's work in China, visit the China Energy and Climate Project website at: http://globalchange.mit.edu/CECP/.

Traditionally, oil prices have been used to gauge the natural gas market; but new research shows that the future of what is currently a cheap fuel is really anyone's guess.

Natural gas prices neared the lowest they've been in about a decade this past winter, as utilities scrambled to take advantage of the fuel's low price tag and producers began to turn away from the low-profit fuel. According to new numbers from the U.S. Energy Information Administration, the proportion of natural gas used to generate electricity soared to almost 35 percent in February—the highest ever for that month—while production saw its biggest decline in a year. These factors have led some to believe prices will rise again, and soon. Not so fast, say researchers at MIT.

Their study, featured in the latest issue of The Energy Journal, compares oil and natural gas prices from the early 1990s to today, showing a relationship between the pricing of the two fuels. But the nature of that relationship is constantly changing and is subject to external pressures, making it extremely difficult—if not impossible—to predict the price of natural gas in the short or long term.

"The tie between gas and oil has been exaggerated," says John Parsons, the lead author of the study and executive director of MIT's Joint Program on the Science and Policy of Global Change and Center for Energy and Environmental Policy Research. "Parity will get re-established, but it might take a long time and it might be at a different level than you thought."

The research shows that, besides the price of oil, two forces heavily influence the gas market: long-term forces, like technological change, and short-term volatility due mostly to weather or seasonal changes. Both of these forces are currently at work, as prices per million British thermal units have fallen from $10 back in 2008 to $4 last fall to $2.40 today.

Parsons attributes a majority of the drop since last fall to weather, but points to new technology known as hydraulic fracturing—along with other factors such as the global recession—as the cause of the much larger drop in price over time. He says the price may recover from the short-term drop quickly—perhaps back to $4 in just a couple years—but price recovery from the effects of hydrofracking technology could take much longer.

"And so the danger is [that] we say that there's parity" between oil and gas prices, Parsons says, "and it gives people the impression that the parity establishes itself quickly and they discount the price signal and try to keep going with producing gas."

This is what happened when prices fell in the past: Producers were slow to take the price fall seriously because of the usual short-term volatility attributed to weather and seasonal changes.

How the gas market will shape up in the long term is anyone's guess, Parsons says, largely because untapped resources are a wild card. Right now, the U.S. has a very cheap resource that provides a short-term cushion of low-priced gas. If hydraulic fracturing turns out to have limited applications, gas prices probably won't stay low for very long. But if other parts of the world rich in natural gas choose to use hydraulic fracturing, natural gas could turn into a revolutionary fuel, he says.

That will "affect the price of gas and the price of oil and the pattern of electricity production globally," Parsons says. "But none of us know."

The researchers conclude that as much as oil and gas prices have been somewhat intertwined in the past, it is likely they will continue to affect each other. Future changes in gas-to-liquid technology, for example, would further strengthen the gas-oil relationship—likely driving oil prices down, gas prices up, and re-establishing some parity between the two.

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With the advisement of several Joint Program on Global Change researchers—including the co-director Ron Prinn and co-director emeritus Jake Jacoby—the MIT Museum opened a new exhibition “Rivers of Ice: Vanishing Glaciers of the Greater Himalaya.” The exhibit draws from mountaineer and filmmaker David Breashears’ breathtaking photographs, and places them in context with those of earlier mountaineer photographers—revealing the glacial melt that has occurred over time.

Breashears, who took the photos throughout his forty-five expeditions to the Himalaya, views the Rivers of Ice exhibition as an opportunity to trigger public dialogue as scientists and policymakers work to better understand what exactly is happening to the glaciers of the Greater Himalaya. Formed by the collision of continents, the water from the glacial ice melt in the Himalaya contributes to watersheds that serve the drinking, agriculture and business needs of more than 1 billion people throughout Asia. As the snow cover melts and the glaciers of the Greater Himalaya retract and change, the need for greater and more detailed understanding of their importance to human and ecological systems increases.

Breashears hopes the exhibit—and a related symposium taking place on Saturday, April 21—will provide insight into some of the groundbreaking research being done to better understand the glaciers’ potential impact on global environmental issues.

Rivers of Ice, once viewed, cannot be forgotten. By experiencing the photography 'in the round' and at large scale, by viewing artifacts from expeditions past and present, and by learning about the people who call the Himalaya home, MIT Museum visitors gain a deeper understanding of the grand beauty of these mountains, as well as their significance to the global challenges we face today.

 
The exhibit, which will be open from April 13, 2012 to March 17, 2013, is a collaboration between the MIT Museum, GlacierWorks, and the Asia Society and designed by ThincDesign.

More information about the exhibit can be found here: web.mit.edu/museum/exhibitions/rivers-of-ice.html

In an effort to share what is known, what isn't, and what can and cannot be done about climate change, MIT's John Reilly and Kerry Emanuel joined UMass Amherst researchers as part of a "Global Warning" panel convened by The Boston Globe.

Today’s global challenges will significantly affect how we grow our food. But these challenges are so complex and intertwined that response measures require collaboration and a broad, integrated lens.

Despite improvements in air quality, the economic impact of air pollution has increased dramatically, new MIT study shows.

By: Vicki Ekstrom, Joint Program on the Science and Policy of Global Change

Although China has made substantial progress in cleaning up its air pollution, a new MIT study shows that the economic impact from ozone and particulates in its air has increased dramatically.

In recent decades, China has experienced unprecedented growth. But that growth comes with a steep price tag, according to the study, which appears in the February edition of the journal Global Environmental Change. The study, by researchers at the MIT Joint Program on the Science and Policy of Global Change, analyzes the costs associated with health impacts from ozone and particulate matter, which can lead to respiratory and cardiovascular diseases.

Quantifying costs from both lost labor and the increased need for health care, the study finds that this air pollution cost the Chinese economy $112 billion in 2005. That’s compared to $22 billion in such damages in 1975.

“The results clearly indicate that ozone and particulate matter have substantially impacted the Chinese economy over the past 30 years,” even though there have been significant improvements in air quality detected over this period, says Noelle Selin, an assistant professor of engineering systems and atmospheric chemistry at MIT.

The researchers discovered this large economic impact because they looked at pollution’s long-term effect on health, not just the immediate costs. In doing so, they found two main causes for the increase in pollution’s costs: rapid urbanization in conjunction with population growth increased the number of people exposed to the pollution, and higher incomes raised the costs associated with lost productivity.

“This suggests that conventional, static methods that neglect the cumulative impact of pollution-caused welfare damage or other market distortions substantially underestimate pollution's health costs, particularly in fast-growing economies like China,” says Kyung-Min Nam, one of the study’s authors and a postdoc in the Joint Program on the Science and Policy of Global Change.

Nam gives one example from the study showing that pollution led to a $64 billion loss in gross domestic product in 1995. That compares to static estimates from the World Bank that found the loss to be only $34 billion.

In this way, Selin says, “this study represents a more accurate picture than previous studies.”

Kelly Sims Gallagher, an associate professor of energy and environmental policy at Tufts University’s Fletcher School, agrees: “This important study confirms earlier estimates of major damages to the Chinese economy from air pollution, and in fact, finds that the damages are even greater than previously thought.”  

The researchers calculated these long-term impacts using atmospheric modeling tools and comprehensive global economic modeling. These models proved especially important when it came to assessing the cumulative impact of ozone, which China has only recently begun to monitor. Using their models, the MIT researchers were able to simulate historical ozone levels.

China has become the world’s largest emitter of mercury, carbon dioxide and other pollutants. In the 1980s, China’s particulate-matter concentrations were at least 10 to 16 times higher than the World Health Organization’s annual guidelines. Even after significant improvements by 2005, the concentrations were still five times higher than what is considered safe. These high levels of pollution have led to 656,000 premature deaths in China each year from ailments caused by indoor and outdoor air pollution, according to World Health Organization estimates from 2007.

“The study is evidence that more stringent air-pollution control measures may be warranted in China,” Gallagher says — because of not just the health effects of pollution, but also the economic effects.

China is taking steps to respond to these health and economic concerns. In January, the nation set a target to limit its carbon intensity (the amount of carbon emitted per unit of gross domestic product) by 17 percent by 2015, compared with 2010 levels.

While the MIT study looked at the benefits of pollution-control measures on health in China, it did not calculate the costs of implementing such policies. That is work the Joint Program on the Science and Policy of Global Change’s new China Energy and Climate Project hopes to accomplish.

“We’re just getting started on an exciting program of work that will involve modeling the energy, environmental and economic impacts of climate and air-quality policies in China,” says Valerie Karplus, director of the China Energy and Climate Project. “The current study has provided initial insights and a strong foundation for this research going forward.”

The China Energy and Climate Project will analyze the impact of existing and proposed energy and climate policies in China on technology, energy use, the environment and economic welfare.