I participated in a discussion initiated by Brad Johnson, the Editor of ThinkProgress Green, on Google Plus this week:
Brad Johnson – Jul 13, 2011 – Public
I never knew Al Gore had a time machine. He’s been running that global warming alarmist conspiracy for a really long time.
Chris Oestereich – He also wrote Fourier’s papers on the greenhouse effect in the 1820’s.
Hunter Lovins – Aye, my big criticism of Al’s approach is that he totally misses the business case for solving the climate crisis at a profit. Guess some folk prefer to focus on being scared rather than being entrepreneurial
Hunter Lovins, President and Founder of Natural Capital Solutions, and recent inductee to the ISSP Sustainability Hall of Fame, knows what it takes to mitigate greenhouse gases. So when she enters the conversation, A – It’s pretty cool, and B – It’s worth paying attention to. Hunter’s comment reminded me of the McKinsey greenhouse gas-abatement
cost curve which I learned of in researching a project for a
course I recently completed . The McKinsey curve displays projects in order from most profitable (Starting at the left.) to most costly. The zero line is the today’s break even point.
- Source: UNEP (Click on the image to view)
The green opportunities below that line are exactly what Hunter was referring to. If you’re interested in digging in on this, I recommend checking out the book she recently authored with Boyd Cohen, entitled “Climate Capitalism.” Their book capably runs the gamut of financially viable opportunities.
The McKinsey Curve assumes a business as usual economic environment which does not feature a carbon tax, or cap-and-trade scheme, for most of the world. If regulations became pervasive, the curve might change dramatically. Profitable projects would likely become more profitable and many of those which are now seen as costly, might become profitable or at least less costly.
Additionally, some of the remaining projects would become more costly as we began to price in the externalities which are currently ignored in our economic systems. To put dollars to this, the EPA has attempted to estimate an equitable cost for every ton of CO2 released into the atmosphere, which they have referred to as the Social Cost of Carbon (SCC). The agency co-published a paper in February of 2010 with the Departments of Agriculture, Commerce, Energy, Transportation, and Treasury in the following range of prices for SCC were offered, “$5, $21, $35, and $65 (in 2007 dollars).” The $21 estimate, equivalent to “roughly 20 cents per gallon of gasoline,” has been viewed as a fairly conservative figure for estimating the value of projects in a carbon tax scenario.
For those unfamiliar with the term, here’s the Wikipedia definition of an externality:
“In economics, an externality (or transaction spillover) is a cost or benefit, not transmitted through prices,[1] incurred by a party who did not agree to the action causing the cost or benefit. A benefit in this case is called a positive externality or external benefit, while a cost is called a negative externality or external cost“)
A classic example of an externality is the pollution caused by a coal-fired power plant. The plant burns coal to produce energy which it sells to consumers, but the transaction does not account for the pollution emitted into the atmosphere.
A new study produced by Economics for Equity and the Environment Network (E3), “a national network of more than 200 economists whose applied research supports active environmental protection,” suggests that the interagency figures may have vastly underpriced SCC. The following passage is from that paper’s Executive Summary.
The government’s calculation of the $21 SCC, however, omits many of the biggest risks
associated with climate change, and downplays the impact of our current emissions on
future generations. Our re-analysis, including those factors, shows that the SCC could be
much higher. In our worst case, it could be almost $900 in 2010, rising to $1,500 in
2050. If the damages per ton of carbon dioxide are that high, then almost anything that reduces emissions is worth doing.
The report then ties back these estimates to the following conclusion:
That is, under many of the assumptions we explored, the damages from a ton of carbon
dioxide emissions in 2050 could equal or exceed the cost of reducing emissions at the
maximum technically feasible rate. In other words, it is unequivocally less expensive to
reduce greenhouse gas emissions than to suffer climate damages. Once this is the case,
the exact value of the SCC no longer matters, and cost-benefit analysis of proposals for
emission reduction conveys no additional information. All that is needed is a costeffectiveness analysis of the least-cost strategy for eliminating carbon emissions as
rapidly as possible.
I think this is where Hunter’s message really hits home. Al Gore’s alarmist position is great for grabbing headlines, but does it elicit action? I recently wrote a post supporting the former Vice President’s article in the latest issue of Rolling Stone magazine, but I do see where Hunter is coming from. There’s plenty to worry about with the threat of climate change, but could we be better served concentrating on the opportunities, rather than the threats? If we focus on the things which will make us better off financially — something we’re quite good at — and do it as fast as we possibly can, we might get where we need to go, without the scare tactics. That said, I’ll go ahead and keep a laser sharp focus on the threats for you. Better safe than sorry… 🙂
Thanks for stopping by!
-Chris
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