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Category Archives: Climate Economics

Ocean Acidification and Warming: The Economic Toll

In a new study authored by Dr. John Talberth and Ernie Niemi of Natural Resource Economics, CSE reviewed the economic consequences of ocean acidification and warming – the two most prominent effects of climate change on our oceans – and estimated what increment to the existing social cost of carbon (SCC) needs to be made to account for these damages. Preliminary results suggest that proper accounting of an economic risk that could approach $20 trillion per year by 2100 would raise SCC 1.5 to 4.7 times higher than the current federal rate, to $60–$200 per metric ton CO2-e. The study has been published online by Elsevier as part of their Reference Module in Earth Systems and Environmental Sciences.

Climate change has the potential to disrupt ocean and coastal ecosystems on a scale that is difficult to grasp. There are two interrelated processes at work: ocean acidification and ocean warming (OAW). Oceans have absorbed roughly half of all anthropogenic emissions of carbon dioxide. Acidification occurs as the absorption of CO2 triggers a series of chemical reactions that increase the acidity and decrease the concentration of carbonate ions in the water. So far, absorption of CO2 has increased acidity of surface waters by about 30% and, if current trends in atmospheric CO2 continue, by 2100 these waters could be nearly 150 percent more acidic, resulting in a pH that the oceans haven’t experienced for more than 20 million years. Among the dire predictions associated with acidification include dramatic reductions in populations of some calcifying species, including oysters, clams, sea urchins, shallow water corals, deep sea corals, and calcareous plankton – the latter effect putting the entire marine food chain at risk. Some models suggest that ocean carbonate saturation levels could drop below those required to sustain coral reef accretion by 2050.

The second process is ocean warming. The mechanisms of ocean warming are complex, and include heat transfer from the atmosphere, downwelling infrared radiation, stratification, reductions in mixing, changes in ocean currents, and changes in cloud cover patterns. Already, the global average sea surface temperature (SST) has risen by over 2.0 °F since the post-industrial revolution low point in 1909. Sea level rise is one of the most conspicuous effects with potentially catastrophic consequences. Models that account for collapse of Antarctic ice sheets from processes driven by both atmospheric and ocean warming indicate sea level rise may top one meter by 2100 and put vast areas of coastal infrastructure at risk.

Obviously, all these physical effects have enormous economic consequences, yet relatively little research has been completed to date on their expected magnitude, timing, and distribution. Indeed, as late as 2012, several prominent climate researchers concluded that economic assessments of the effects of ocean acidification “are currently almost absent.” To help fill in this information gap, we combed through all published research on OAW economic consequences, updated figures where needed, and made some original calculations of our own to estimate some plausible worst-case scenarios. These scenarios appear in Table 4, below. Alarmingly, they suggest that OAW costs could near $20 trillion per year by 2100 in association with a variety of dramatic impacts, such as loss of all charismatic marine species.

Table 4: Plausible worst-case scenarios and values at risk from OAW

Resource or service at risk Scenario Values at risk

($2016 billions/yr)

Net primary productivity Ocean net primary productivity reduced by 16% $9,232.00
Coral reefs Loss of at least 50% of current coral reef area $5,661.70
Coastal infrastructure Additional SLR of 3 meters via WAIS collapse $3,561.69
Charismatic species 25% of charismatic marine species go extinct $1,104.08
Carbon sequestration 50% loss of ocean CO2 uptake $641.16
Mangroves Loss of at least 15% of current mangrove area $287.42
Fisheries 400 million at significantly increased risk of hunger $245.74
Coastal ecosystems Marine dead zones expand in area by 50% $126.82

The relative lack of understanding about economic consequences has, in turn, translated into a lack of policy mechanisms and research focused on OAW. One of the policy mechanisms where OAW costs are notably absent is the social cost of carbon (SCC) – an increasingly popular regulatory tool for assessing both the costs of greenhouse gas emissions and the benefits of actions to limit emissions. Ostensibly, the SCC includes all known market and non-market costs, yet there are many categories missing or incomplete. One of the bigger holes is OAW and one of the justifications for its absence is the relative dearth of methods or data to quantify economic consequences and the assumption that such impacts are minor enough that society will be able to adapt. In the paper, we argue that such barriers need not restrain the government agencies participating in the SCC’s development and application from incorporating estimates for OAW based on the best available information and inclusive of high-impact but low probability scenarios – two factors that are baked into the regulatory framework for the SCC.

We do so by demonstrating three basic approaches rooted in standard microeconomic models of externalities, capital investment, and risk aversion. The first is based on federal agencies’ current approach for quantifying externalities from GHG emissions using the Dynamic Integrated Climate-Economy (DICE) integrated assessment model and economic damage functions suggested by existing literature. The second is a replacement or adaptation cost approach, which views SCC as a current capital investment liability that can be amortized over the adaptation time horizon. The third is an averted-risk approach based on willingness to pay to eliminate the risk of catastrophic changes, an approach that seems most compatible with worst-case scenario requirements under existing law.

In the next phase of this work, the study will be presented to the Interagency Working Group on the Social Cost of Carbon and the National Academy of Sciences, who is conducting a review of SCC methods and accepting recommendations for changes in approaches and sources of information. If the SCC is to be an effective regulatory tool and send the right market signal to polluters it must be as complete as possible. By engaging with the IWG on how to best incorporate the enormous toll associated with ocean acidification and warming, we hope to help fill one of SCC’s most serious omissions.

Further reading:

 

Victory: China Agrees to “Strictly Limit” Public Finance for High-Carbon Projects

For Immediate Release
September 25, 2015

For further information, contact: Daphne Wysham 202-510-3541 (c); daphne@sustainable-economy.org
The Sustainable Energy and Economy Network declared a major victory on September 25, 2015, when China, one of the largest financiers of infrastructure projects worldwide, agreed to “strictly limit” the amount of public financing that it provides toward high-carbon projects. The move is in accord with a 2013 commitment by the United States Treasury Department to cease public financing for new coal-fired power plants, which followed an almost two decade-long battle by civil society groups to shift public financing away from fossil fuels.
“There is much work remaining to be done in holding these countries and public financial institutions accountable to these commitments and pushing them further–to get out of subsidized fossil fuel finance altogether,” said Daphne Wysham, director of the Sustainable Energy & Economy Network (SEEN). “But today, another domino falls as China joins numerous other nations and publicly financed institutions in agreeing to limit its ‘high-carbon’ financing.”

In a series of path breaking reports beginning in 1996, SEEN exposed the disproportionate investment in fossil fuels that was being made in developing countries, including China, by international financial institutions, such as the World Bank, the Inter-American Development Bank, the European Development Bank and export credit agencies, such as U.S. Export-Import Bank. SEEN drew attention to the true beneficiaries of this investment: Not the poorest, as these institutions claimed, but, often, powerful corporations based in the richest countries. SEEN advocated for a shift by these lending institutions from support for fossil fuels and toward investments in clean, renewable energy, with a focus on meeting the energy needs of the poorest. China is now one of the leading investors, both at home and abroad, in infrastructure via the China Development Bank and via the newly formed New Development Bank.

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After 17 years of activism by our members, staff, and partners, we began to see some major breakthroughs when President Barack Obama called on the World Bank to get out of coal-fired power. Shortly after Obama’s call, the President of the World Bank, Dr. Jim Kim, agreed that it needed to stop financing most forms of coal-fired power; other public banks soon began to make similar pledges.

China now joins the following countries that have agreed to end their public financial support for coal-fired power: Sweden, Norway, Denmark, Finland, France, Iceland, the United Kingdom, and the U.S.

The following publicly held banks have agreed to limit their investments in coal-fired power: The World Bank, the European Investment Bank, the European Bank for Reconstruction & Development,  the U.S. Export-Import Bank, U.K.’s ECGD, and France’s COFACE.

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About SEEN:  Founded as a project of the Washington, D.C.-based Institute for Policy Studies in 1996, and now a project of the Center for Sustainable Economy, the Sustainable Energy and Economy Network (SEEN) works in partnership with people regionally, nationally, and globally with a focus on climate justice and, specifically, on ending the fossil fuel age and ushering in the age of clean energy and a sustainable economy for generations to come.

Coal vs. Wild Salmon: The Chuitna Mine Should Never See the Light of Day


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In this late stage of the global warming crisis, it is hard to imagine why the Obama administration and decision makers in Alaska continue to push hard to approve a five thousand acre coal strip mine that will pump over 900 million metric tons of carbon dioxide into the atmosphere. Yet PacRim Coal LP’s Chuitna Coal Mine project is alive and well with the Army Corp of Engineers leading the federal National Environmental Policy Act (NEPA) process. The tragic consequences of this project on the Earth’s climate are bad enough. But what is being lost on the ground is equally disturbing.

According to the Chuitna Citizens Coalition, “the mine will set a dangerous precedent for the State of Alaska by permitting the destruction Middle Creek (stream 2003) by the complete removal of 11 miles of streambed and more than 300 feet of underlying soil and rock strata.” Middle Creek is a valuable fishery supporting chinook and coho salmon, rainbow trout, steelhead, and Dolly Varden trout. It provides roughly 20% of the silver salmon for the entire Chuitna River system and would be utterly destroyed by the mine. Existing uses of the stream and its watershed would also be lost: hunting, fishing gathering wild foods, sportfishing and recreation.

In 2009, the CCC took a novel approach for protecting Middle Creek against the catastrophic impacts of the mine and maintaining these existing uses. CCC used a provision of Alaska law that allows citizens to petition to reserve instream flow rights for fish, wildlife, and recreation. As part of the adjudication process, the Alaska Department of Natural Resources (DNR) must determine whether or not the proposed reservation is in the public interest. Quantifying economic benefits are key to this determination. In a hurried, back of the envelope calculation completed in the spring of 2015, DNR has determined that this pristine wilderness is worth, at best, only $10,600 per year. That’s the dockside value of 1,789 coho salmon the river supports. But what about all the other uses this watershed supports as well as the inherent values Alaskan’s place on preserving this refugia for native biological diversity?

Working with Cook Inletkeepers, CSE conducted a review of the DNR approach and conducted a preliminary ecosystem service valuation of the Middle Creek watershed left in its natural state. Unlike DNR, CSE incorporated all known information about the economic values the watershed supports. What we found is that ecosystem service benefits of the Middle Creek watershed are likely to be in the range of $55.4 million to $134.2 million each year, or a present value of $1.4 billion to $3.5 billion over 50 years. Instream flow benefits are a sub-component of ecosystem services provided by Middle Creek. These are the benefits associated with direct uses of the river. The literature on instream flow benefits per acre-foot suggests an annual value of instream flow on Middle Creek to be in the order of $7.1 million to $17.0 million each year, or a present value of $183.4 million to $436.6 million over 50 years.

By concentrating on a single benefit – the dockside value of a single species of fish – DNR has drastically underestimated Middle Creek’s economic values and, thus, has biased its decision making process against instream flow protection. CSE’s analysis has now been submitted to DNR for consideration in the adjudication process and submitted to the Army Corp for consideration in the NEPA process. Cook Inletkeeper, CSE and partners in Alaska hope this will force these agencies back to the drawing board to consider the true worth of this pristine Alaska wilderness.

For a copy of CSE’s Middle Creek valuation, please visit our Chuitna Project Page here.

The Economic Benefits of Baltimore’s Climate Action Plan

eco-benAll too often we hear how climate action will put a drag on economic growth. But in a new analysis of Baltimore’s Climate Action Plan (CAP), Center for Sustainable Economy demonstrates just how wrong that assumption really is. Once fully implemented, Baltimore’s Climate Action plan is likely to generate a significant boost to the City’s Genuine Progress Indicator (GPI), an overall measure of economic wellbeing adopted in Maryland and now being road-tested in Baltimore.

Annual benefits are likely to range between $548 million and $720 million per year, an increase of 4 to 5% over a business as usual scenario. This means that if the CAP were in place today, Baltimore’s GPI could rise from $13.94 billion to as much as $14.66 billion each year. The most significant benefits will be generated by the reduced costs of greenhouse gas emissions and associated air and noise pollution. These benefits are likely to amount to nearly $358 million per year. Air and noise pollution benefits will be associated with a 25% reduction in vehicle miles traveled.

New transportation, water, and household infrastructure in the form of cool rooftops, solar panels, efficient appliances, weatherization, energy saving streetlights, bike lanes, and electric vehicles will generate between $129 million and $235 million in benefits per year. Income freed up by energy savings as well as income generated by new jobs will boost household spending and Baltimore’s GPI by $19 million to $36 million each year. New jobs will help push down the costs of underemployment by nearly $6.6 million. Other significant annual benefits will be associated with decreased dependence on fossil fuels ($17 million – $65 million), less traffic congestion ($13 million) and an enhanced urban tree canopy ($5.9 million – $7.4 million).

While most conventional economic metrics – like gross state product – overlook these important benefit categories, they are central to the GPI and central to the concept of economic wellbeing. This is why the State has established the GPI as an important measure of economic performance, and why CSE is working with the City of Baltimore to establish its own local variant. Once formally in place, and as demonstrated in our CAP analysis, Baltimore’s GPI can be an important tool for informing major policy initiatives such as those related to living wages, climate, stormwater, and infrastructure. The GPI can also serve as a guide for setting budget priorities that maximize economic wellbeing for Baltimore’s residents.

For a copy of CSE’s analysis of Baltimore’s CAP, click here to visit our project page.

Public Liability for Fossil Fuel Infrastructure

climate-economicsEventually, society will reduce its use of fossil fuels. While the legacy of environmental impacts from fossil fuel production is well known, another issue on the horizon is what to do with the vast complex of drilling platforms, pipelines, storage tanks, marine terminals, and other elements of oil and gas infrastructure. Long after production ceases, this infrastructure could affect water quality and wildlife habitat as well as public safety and recreation.

Once operations cease, state and federal regulations require companies to dismantle and remove infrastructure and rehabilitate any affected ecosystems (DR&R). Companies post Continue reading

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