Hints of impending climate disaster greet us every morning: winters are getting milder, summers are getting warmer, and storms seem more frequent and severe. But these are mere symptoms of the greater problem to come—severe climate disruption from overall global warming. To prevent climate change from leading to worldwide catastrophe, both developed and developing nations must take steps to sharply reduce greenhouse gas emissions. In this effort, it is essential that the United States takes the lead; thus, this article focuses on the role that country should play in addressing its own greenhouse gas emissions.

The scope of the problem

Concerning the prospect of failure to rein in greenhouse gas emissions, NASA’s James Hansen, in a talk delivered at the National Press Club in early 2007, said, “We will have dramatic climate changes that produce what I would call a different planet—one without sea ice in the Arctic; with worldwide, repeated coastal tragedies associated with storms and a continuously rising sea level; and with regional disruptions due to freshwater shortages and shifting climatic zones.” The vast majority of climatologists and scientists from related disciplines agree.

Climate change will also affect world security. The Age of Consequences, a report released in 2007 by the Center for Strategic and International Studies, notes that if current projections are correct and the planet warms by 1.3°C (2.3°F) by 2040, there will be “heightened internal and cross-border tensions caused by large-scale migrations; conflict sparked by resource scarcity, particularly in the weak and failing states of Africa; increased disease proliferation, which will have economic consequences; and some geopolitical reordering as nations adjust to shifts in resources and prevalence of disease.” ¹

The CO₂e abatement imperative

According to observations at Mauna Loa observatory, in Hawaii, current levels of atmospheric carbon dioxide stand at 387 parts per million (ppm), up almost 40 percent since the Industrial Revolution and the highest levels in 650,000 years. World CO₂e emissions^2^ stood at almost 45 gigatons (or billions of tons) in 2007, of which the United States contributed 7.2 gigatons. Under a business-as-usual scenario, world CO₂e emissions are forecast to rise significantly by 2050. Staying the course could cause global temperatures to increase by up to 4°C (CO₂ at 450 ppm) by 2030 and runaway global warming (CO₂ at more than 550 ppm) by 2050 or earlier.

Put simply, the world is combusting fossil fuel—coal, oil, and natural gas—at an unsustainable rate. At the same time, we are tearing down the natural world, which absorbs and stores carbon. Unless we undertake strong remedial measures in the very near future, greenhouse gases will continue to rise at a rate that puts the world at serious risk.

Steps to encourage energy-saving initiatives should have been taken 30 years ago. It will take that amount of time, if not more, to control greenhouse gas emissions and thus stabilize global temperatures at 2°C above current levels, the consensus target to avoid catastrophic outcomes. To accomplish this goal, global emissions of greenhouse gases will have to be reduced by 80 percent by no later than the middle of the century.

A ballooning global population

To put the root cause of climate change in more tangible terms, the average CO₂e emissions rate per person in the United States for 2007 was 20 tons; in Europe, 10 tons; and in India, 2.2 tons. If we are to avert climate disaster, the global rate must be reduced to India’s current per capita level. But even if the world accomplishes this feat, the increase in world population alone—from, say, 6.5 billion now to 9.5 billion by 2050—would contribute an additional 7 gigatons of CO₂e to the atmosphere.

Indeed, population growth is overwhelming the earth and shows no signs of stabilizing at a sustainable level. The world population is forecast to add 75 million each year, growing to 11 billion to 12 billion before topping out late in the century. As the population increases, so too will energy demand, satisfied largely by burning fossil fuels. Indeed, world demand is forecast to double by 2050, despite possible improved energy efficiency. As demand in the developed world continues to grow, the developing world will also become rapidly more electrified. Billions of people will be receiving electric power for the first time albeit from old-technology: coal-fired power plants, the leading source of CO₂ emissions.

Deforestation and the carbon sink

The problem of the world’s “carbon sink” (the stock of trees and agricultural acreage, which absorb CO₂) must also be addressed. Today, nearly 20 percent of greenhouse gas emissions are a result of the deforestation of mostly tropical forests. An additional 10 percent or more comes from poor agricultural practices, and their subsequent carbon and methane emissions, on deforested land. World tropical forests are disappearing, and even in the United States the slowing growth of mature forests, together with land-use conversion, has changed the carbon sink from an expanding absorber of CO₂ to one that is declining.

Developing countries today hold more than half of the solution to greenhouse gas emissions growth and must be part of any global attack on climate change by both preserving and extending forest land coverage. To do so, they will require financial help from wealthier countries in recognition of the role forests play in providing for the common good. Moreover, once a price on carbon has been established, active investment in tropical forests by the private sector must be encouraged. Without that help, many developing countries will feel they have no choice but to sell their forests into harvest and agricultural after-use in order to free up funds to support urgent economic development.

The next global economic boom

As the current economic crisis abates, the world is likely to return to a major global economic boom. Such a turn will certainly lift economies worldwide. But this increase in development (and thus carbon)—partnered with the human tendency to focus on the short term rather than worry about tomorrow—will further drive the destruction of our natural habitats. The World Bank expects global GDP to exceed $135 trillion by 2050, nearly four times current world levels. Imagine the consumer economy that will underlie that figure.

Emerging economies are already exploding with promise and potential. Macroeconomic reforms, in tandem with favorable demographics, are creating a historic and self-fueling boom as billions of “have nots” gain access to the tools needed to build and sustain wealth. The GDP of emerging-market countries as a group has been growing at roughly twice the rate of advanced economies—averaging 7 percent, compared with 2 to 3 percent in developed economies in recent years. And emerging economies today produce more than half of world output (measured at purchasing-power parity). Economic power is indeed shifting strongly to the developing world, and China and India—the two most populous countries in the world—are growing the fastest.

The global base of consumers is forecast to double by 2025, with $5,000 per capita income being the threshold of discretionary spending. Demand for consumer goods, including luxuries, will explode. China and India will likely add more than 1.1 billion cars by 2050—countries that three years ago had fewer than 20 million cars in total. Consider the greenhouse gas effect of this expansion.

The cap-and-invest solution

In 2007, McKinsey examined more than 250 greenhouse gas abatement options in the United States and wove these options into a series of abatement curves showing the cheapest, most effective sequencing of actions.³ The results revealed that nearly 40 percent of abatement efforts in the United States can be accomplished at “negative cost” (in effect, creating positive economic benefits) to the economy. This amount, achieved largely through energy-efficiency programs, would be sufficient to offset the remaining costs of lowering US greenhouse gas emissions—assuming that a carbon cap is instituted, that investments are made in emerging energy technologies, and that other low-cost investments are made to expand the US carbon sink. The study concluded that the United States (and, by extension, other nations) can bring greenhouse gas emissions down sharply at reasonable cost and with little if any negative effect on GDP.

To ensure corporate participation in efforts to reduce carbon emissions, Washington should establish a four-part “cap and invest” strategy by using the revenue generated from selling pollution allowances to fund innovation in the fields of energy efficiency and clean-power generation. This could result in $150 billion to $200 billion of new federal revenue annually (roughly 6 gigatons of allowances initially at a minimum estimated price of $20 or more per ton of CO₂) ⁴ plus more if Congress and the states were to cut back hydrocarbon subsidies costing roughly $300 billion per year (according to the National Defense Council Foundation). Combining these two sources would produce a massive war chest to finance the transition to a low-carbon economy.

The four parts of the US cap-and-invest strategy should include: (1) a cap-and-trade system to reduce carbon emissions; (2) a set of hard-hitting energy efficiency programs—for example, imposing minimum federal energy-efficiency standards on appliances and buildings and other inducements, such as a system of “performance-based federalism,” in which the federal government would reward states that successfully reduce greenhouse gas emissions; (3) federal support to bring critical technologies to scale (carbon capture and storage for utilities, solar, advanced wind, advanced biofuels); and (4) programs to tap the carbon-reducing potential in sectors of the economy lying outside a cap-and-trade regime—for example, expanding standing forests and improving agricultural practices.

Strong federal leadership is essential in order to move quickly toward a fair solution. Only federal action can rapidly establish the types of clear economy-wide rules that can unlock least-cost abatement strategies. Where feasible, a federalist approach should be encouraged to allow state-level innovation, and states should remain empowered to push for tougher action going beyond what national politics supports.

Scaling up greenhouse gas abatement solutions in the United States will require clean infrastructure investments totaling roughly $5 trillion over the next two decades, including redirecting $3 trillion currently planned for conventional fossil fuel infrastructure toward clean solutions (this number excludes the cost of energy subsidies).

Once the transition to a clean-energy economy is well along, funds from the annual auction of emissions allowances should be redirected back to the nation’s citizens (a “cap-and-dividend” approach), effectively moving toward a revenue-neutral taxation approach. This strategy would allow the United States to move toward a low-carbon economy at a negligible net economic cost.

Placing a cap on carbon

A cap-and-trade system in which carbon dioxide and other greenhouse gases become a “factor cost” of production would ensure that polluters pay for emissions. Such a system would require each emitter to purchase emission allowances equal to their annual emissions through government-sponsored auctions. Those companies able to abate emissions more efficiently could choose to sell their excess allowances to other carbon polluters that have only higher-cost abatement options available to them.

A well-designed cap-and-trade system should be:

• economy-wide, including all (or practically all) CO₂e emissions, all industrial gases, and all large-source agricultural–landfill sources
• mandated to ensure the emissions cap and the number of allowances decline over time, so pressure on emitters to act is clear and of increasing force
• unlimited by any “safety valve” provisions to loosen the cap if carbon prices rise above a threshold level
• long term, with inter-year banking and borrowing to minimize investor uncertainty by smoothing price signals
• verifiable, allowing offsets only where emissions reductions from individual projects undertaken outside of capped sectors can be confirmed as real and additional
• structured to maximize public benefit by using the value created by emissions allowances to ease the transition to a clean-energy economy through support for efficiency, innovation, and non-fossil-fuel abatement.

Such an approach would ensure the broadest possible economy-wide response while rewarding emitters who act to reduce their emissions in advance of implementing the emissions cap Anything less would result in windfall profits for emitters who could recover CO₂ cost increases twice over, by passing on higher marginal production costs to consumers while at the same time receiving free allowances. In the European Union, for example, utilities received grandfathered CO₂ allowances, but they also raised power prices and earned windfall profits on the order of $20 billion per year in 2005 and 2006. Examples of legitimate uses of government revenue from selling emission allowances include federal incentives for new superefficient appliances; increased funding for research, development, and deployment of low-carbon technologies; and open-space acquisition and tree-planting programs to expand carbon sinks.

Promoting energy efficiency

Nonprice market barriers such as split incentives between landlords who purchase energy equipment and tenants who pay energy bills block energy efficiency investments that are highly cost-effective even without considering CO₂ emissions, other environmental costs, or energy security. Thus, policies that overcome these barriers would not only generate large economic benefits for the United States but also limit the effects of climate change.⁵

Energy efficiency measures identified by McKinsey, listed in the bullets below, could potentially provide economic productivity benefits of approximately $160 billion to the US economy by the year 2030. But to unlock this potential, specific policies are needed urgently, both because the benefits are large and because many of the opportunities are time sensitive and will disappear if we continue to construct more energy-inefficient buildings, build more high-carbon power plants, and put more gas guzzlers on the road.

Efficiency policies come in three flavors.

• Information measures to help end users make rational investment decisions, thereby strengthening the price responsiveness of efficiency investments
• Incentives and standards to encourage commercialization of advanced energy-efficient devices while pushing inefficient models out of the market
• Direct-procurement programs to encourage utilities and energy service companies to deliver energy efficiency as a service to end users who otherwise might not invest as the result of a combination of split incentives, information shortfalls, and cognitive biases

One idea is to adopt a program of “performance-based federalism,” in which states that make substantial progress in reducing greenhouse gas emissions (for example, through enforcing stricter building codes, implementing transit-friendly land development, or expanding state and local open-space programs) would be rewarded through federal incentives funded by revenue from auctioning emissions allowances under the cap-and-trade program. The federal government should also establish nationwide gradual, minimum energy-use standards for appliances (while allowing leading states to move ahead to set more stringent standards).

Supporting innovation

Energy innovations, such as bringing solar technology to cost-effective scale, have the potential to reduce total estimated compliance costs by $70 billion in 2030. However, a cap-and-trade program designed to address greenhouse gas externalities will not ensure adequate energy research, development, and deployment funding, because innovation spillovers that benefit competitors and other barriers will continue to slow the emergence of clean-energy technologies. In addition, federal support for energy research and development must be augmented and complemented explicitly by a forceful federal deployment policy. Government support for emerging energy technologies can also provide strong social returns, such as reduced mercury emissions—even without considering global warming benefits.

Efforts to further innovation are needed for approximately 20 to 30 percent of the abatement solutions identified by McKinsey for the year 2030—and for a larger share of post-2030 abatement. Given the long lead times for developing new energy solutions, comprehensive federal support of innovation is essential and should be ramped up as quickly as possible. The federal government should identify a broad portfolio of such technology classes in order to minimize the risk associated with betting on any one technology. The government should then let the market choose the specific technologies within each broad class that meet specified performance standards.

Capturing forestry and agriculture opportunities

Besides capping carbon emissions, US global-warming regulations should encourage the capture of forestry and agriculture-related abatement opportunities (including afforstation, improved forest management, open-space protection programs, tree planting, conservation tillage, and manure management methane capture)—which could constitute more than 500 megatons of incremental abatement per year according to the McKinsey study on reducing US greenhouse gas emissions cited earlier (more if conservation efforts not included in that study are considered). Forestry and agriculture measures in the United States, most of which involve increasing the country’s annual biosequestration sink, are relatively low-cost abatement options and have the potential to reduce year-2030 compliance costs by roughly $20 billion.

Despite the attractiveness of these options, the abatement opportunities currently available (such as generating electricity off of methane produced from livestock manure) are highly fragmented and diffuse, making it difficult to include these emissions under an emissions cap. Moreover, a cap would do nothing to encourage the capture of the significant offset opportunities available from forestry and land use. Additional government action above and beyond a cap-and-trade system is, therefore, necessary.

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Rapid action to cap greenhouse gas emissions would yield strong net benefits for the US economy. The cost of imposing such a carbon cap on the economy, however, will depend largely on the nation’s success in scaling efficiency and commercializing clean-energy technologies. With strong cost-minimization policies, a carbon cap does not have to impose a material economic burden (the average abatement cost should be roughly $0 per ton of CO₂e). Even under the very conservative assumption that the average cost of emission reductions were to range up to $50 per ton, the total US economic burden for addressing greenhouse gas emissions would likely reach only 1 percent of GDP by 2030.⁶

The primary benefit of imposing a carbon cap in the United States is the prospect of containing the adverse impact of global warming. Assessments by prominent researchers such as Lord Nicholas Stern, former chief economist of the World Bank, suggest that the quantifiable negative GDP impact would range anywhere from 5 percent or less up to 20 percent from unchecked climate change. Moreover, while the basic physics of global warming are well established, profound uncertainties remain regarding the potentially catastrophic effects of climate change.

If the United States decides to cap domestic emissions, the hope is that this action would provide the credibility needed to negotiate an international accord, which would help address the problem on a global scale. Even if such an accord proves elusive, by moving early the United States would still reduce the risk of extreme global-warming outcomes while developing the technological edge to roll out solutions quickly to global markets once a serious global emissions containment regime is negotiated.

Effective solutions to climate change exist, so long as the world chooses to embrace them. The only equitable long-term goal is to equalize emissions rights per capita—whether a country is wealthy or poor—at a much lower level over the coming period when world population is doubling and world incomes are tripling. Global trading schemes and other measures can move the world toward equalization if OECD ⁷ nations will accept that they must help offset the costs of middle-income and poorer developing countries in the move toward clean-energy infrastructure, while concurrently protecting tropical forest stands. Moving toward equalizing emissions rights per capita over time is fair and can be justified to the world.

The key to inspiring a call to action must be found in the priorities set by the Obama Administration. Such a call cannot gloss over dangers intrinsic in human-induced climate disruption as merely an inconvenience. A clear explication of resource limits, the need to innovate and take solutions to scale, a description of what awaits us if we remain unmoved by science and simple observation, and a notion of sacrifice are all vital parts of a call to action, which will require a national mobilization of resolve not seen since the early days of World War II. The call to action should also explain the great opportunities that await those who develop and deploy new energy technologies and more efficient devices—a future of low-carbon prosperity for the entire world. The prospect of catastrophe is real, and the window of opportunity to avoid it is closing rapidly.

¹ See Kurt M. Campbell et al., The Age of Consequences: The Foreign Policy and National Security Implications of Global Climate Change, Center for Strategic and International Studies, November 2007.
² CO2e is a measure of all greenhouse gases—such as CO2, methane, and nitrous oxides—on an equivalent basis.
³ Reducing US Greenhouse Gas Emissions: How Much at What Cost? December 2007
⁴ This estimate excludes the possibility of benefits from removing current subsidies to fossil power generation. If removed, the net effect would be to increase the funds available for redirection to support the transition to a low-carbon economy or provide additional tax relief to the public. Federal subsidy reform should go hand in hand with a cap-and-trade policy.
⁵ Note that the Environmental Protection Agency already has the authority to regulate greenhouse gas emissions, which was confirmed by the Supreme Court in 2007. For example, the EPA could use the Clean Air Act as an instrument to implement regulations.
⁶ Assumes 5 billion tons of emissions reduction required in 2030 at $50 per ton, or $250 billion in annual economic burden versus US GDP of $24 trillion based on 2.6 percent growth in real GDP (Annual Energy Outlook 2008).
⁷ Organization for Economic Co-operation and Development.

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