News Releases
By: Vicki Ekstrom, Joint Program on the Science and Policy of Global Change
Regional climate policies depend largely on fiscal strategies and can have spiraling effects throughout the globe, a new MIT report further proves in the January edition of the Journal of Transport Economics and Policy. The report — titled “Biofuels, Climate Policy, and the European Vehicle Fleet” — uses the European transportation system as a test case and shows the significant impact various fiscal policies can have on emission reductions.
“The effectiveness of climate policies in isolation might depend crucially on the fiscal rules and environment,” says Sebastian Rausch, a co-author of the study and a research scientist at MIT’s Joint Program on the Science and Policy of Global Change. “So if you want to think about effective emissions-reduction policies and climate policies you have to take into consideration their interaction with other mechanisms like taxes and tariffs.”
For decades, Europeans have relied on diesel to power their cars. While better for the environment, these drivers have traditionally chosen diesel because higher taxes on gasoline make diesel the cheaper alternative. But now, Europe is encouraging its drivers to consider greener options. The European Union has imposed a renewable fuel mandate that requires 10 percent of fuel to be based in renewable sources like biodiesel or ethanol by 2020.
But will the higher price tag that often comes with renewables cause the mandate to have a negative effect? The MIT researchers say no. Studying the system with and without the mandate, they find that the number of drivers using diesel and biodiesel continues to increase with time because of rising oil prices and a tax system that balances out the additional expense of using renewables.
“So fueling up with biodiesel would still be 69 cents a gallon cheaper than gas,” Rausch says, “and it has the added benefit of reducing European emissions by about 8 percent by 2030.”
The report further analyzes the impact of tax or tariff changes, in combination with the imposed mandate. As one might expect, when gas and diesel have an equal tax rate almost a quarter fewer drivers choose diesel by 2030. The renewable fuel mandate also does not have a large impact on emissions because more drivers turn to gas. But if biodiesel and ethanol tariffs are removed, Europe can achieve significant emission reductions — about 45 percent — as these renewable fuels become cheaper to import and use. At the same time, diesel vehicles would all but disappear as ethanol blends crowd out the diesel market.
Looking at a global scale, the report shows that while renewable initiatives can cut emissions within that country, they can also cause spikes in emissions in other countries — or what is known as “leakage.”
Rausch explains: “You’re still driving a fair amount of diesel vehicles, but the fuel to drive those vehicles now comes from Brazil and other countries because you’ve removed your tariffs. You don’t have to produce as much diesel in the EU, so your emissions there are little bit lower. But the countries now producing more fuel to import to the EU see higher emissions.”
But there is still a positive side, Rausch says: “Because there’s a switch in imports from diesel to biofuels, emissions do get reduced in other countries as well because biofuel production releases fewer emissions than diesel production.”
These fuel changes in Europe can have a “snowballing effect,” Rausch says. Along with “leakage,” there can be other consequences. If Europe evens out its tax system, for example, increased demand for gasoline in Europe would drive up gasoline prices outside of Europe and lower gas consumption and emissions in general.
By: Vicki Ekstrom, Joint Program on the Science and Policy of Global Change
Shale gas — a resource that has grown significantly in just the last few years to one-quarter of the domestic gas supply — is cheaper and involves fewer emissions than traditional coal or oil. But recent environmental concerns, combined with shale gas's important role in the global economy, have prompted the Obama administration and MIT researchers to investigate the resource and its potential impacts.
“People speak of [natural] gas as a bridge to the future, but there had better be something at the other end of the bridge,” Henry Jacoby, co-director emeritus of MIT’s Joint Program on the Science and Policy of Global Change, said earlier this year after co-authoring a report by the MIT Energy Initiative (MITEI) on The Future of Natural Gas.
Jacoby’s nagging thoughts prompted him and other researchers to further study shale gas and how its success could impact U.S. energy policy, including future technological development. Built on the MITEI study, the researchers' new report — The Influence of Shale Gas on U.S. Energy and Environmental Policy — is in this month's inaugural edition of the journal Economics of Energy and Environmental Policy.
“Prior to this we hadn’t compared U.S. gas production with and without shale,” Jacoby says of the new research. “This report makes that comparison. And we found much of what we already knew — which is a good thing — that shale makes a big difference. It helps lower gas prices, it stimulates the economy and it provides greater flexibility to ease the cutting of emissions. But it also suppresses renewables.”
The researchers came to these conclusions by considering what our nation would look like with shale and without shale under several policy scenarios. They found that gas prices would rise by about five times the current levels by 2050 without shale gas, under one scenario; electricity prices would also grow. But with shale gas, prices should only about double. The shale input also reduces electricity price growth by 5 percent in 2030 and 10 percent in 2045, compared to a scenario without shale gas.
A report released last month by IHS Global Insight, a global research firm commissioned by America’s Natural Gas Alliance, shows similar results. Prices would drop 10 percent in 2036 with shale, according to IHS, and the industry would add 870,000 U.S. jobs by 2015.
John Deutch, MIT professor and chair of a special U.S. Department of Energy panel studying shale, agrees with the significant economic contribution the shale industry can provide. Deutch, who was associated with the earlier MITEI report but not the new MIT study, said that the most recent employment estimates showed that there are three-quarters of a million jobs in the shale gas industry.
“More jobs are being created in Pennsylvania and Ohio by shale gas production than anything else that I’m aware of,” Deutch said at a recent MIT lecture, suggesting the significance of those two battleground states in U.S. elections.
“Over the last couple of years I’ve realized that what’s happening with unconventional natural gas [shale] is the biggest energy story that’s happened in the 40-plus years that I’ve been watching energy development in this country,” says Deutch, who served as undersecretary of the Department of Energy in the 1970s.
Shale’s low price tag is one of the reasons for its boom. For every $4 we pay for energy from natural gas, we pay $25 for oil, according to recent statistics from the U.S. Energy Information Administration.
Jacoby and Deutch agree this is not sustainable, and that there is a great incentive to continue to tap into the shale market — with Deutch calling shale “remarkably inexpensive” compared to other forms of natural gas.
This successful outlook has prompted some of the world’s leading oil companies to further invest in natural gas, and specifically shale gas production. Last month, Shell announced it would double gas production in North America in the next three years and that it has recently expanded its work to China.
But Jacoby warns, “Natural gas is a finite resource. We will eventually run into depletion and higher cost.” He adds, “It still releases greenhouse gas emissions. So if we’re going to get to a point where we strictly limit those emissions, we need renewables.”
The continued need for strong renewables prompts concerns, as the study finds that shale use suppresses the development of renewables. Under one scenario, for example, the researchers impose a renewable-fuel mandate. They find that, with shale, renewable use never goes beyond the 25 percent minimum standard they set — but when shale is removed from the market, renewables gain more ground.
These findings are significant in light of several concerns surrounding the unpredictable shale gas market and future environmental regulations.
One concern about shale gas extraction, and the most headline-grabbing concern, is that fluids from the gas production — a process called hydraulic fracturing, or simply fracking — could seep into and contaminate groundwater supplies. While the report found these concerns to be “overstated,” the Deutch shale panel said in November that “environmental issues need to be addressed now.”
This conclusion, along with uncertainties about how stringent greenhouse gas emission targets will be going forward, leaves the regulatory environment in question.
There’s also the concern that the global gas market is unpredictable because the shale revolution is still in its early stages.
Jacoby says the development of the industry in the United States is important because prices here are much cheaper than in other gas markets — namely, Europe and Asia. While we pay less than $4 per thousands of cubic feet, other markets pay up to $16. Because it is so much cheaper here, there’s the potential for us to become exporters.
But Jacoby calls this really a “matter of timing.”
“In the near term, our supplies are cheap enough that we should have the ability to export,” Jacoby says. “But over time, we likely won’t be able to compete with places like Russia and the Middle East that have lower costs, and eventually we’ll again turn to importing gas.”
Jacoby compares the global gas market to the oil industry. As shale resources are developed in places such as China, which recently announced that it was tapping at least 20 new reserves, prices will likely drop overseas and the United States will turn to cheaper imports as it has for oil.
An uncertain international gas market, an unpredictable regulatory environment with more stringent emission goals and decreasing natural gas reserves over time all point to the growing need to continue developing renewable technologies.
“Effective use of renewables, namely wind and solar, are still many years away,” Jacoby says. “How we tap into those resources and effectively work them into our electric grid still needs to be figured out. To get us there we need a robust R&D program so we’ll have renewable energies up and working effectively later in future decades when emissions regulations are stricter, and gas reserves are depleting.”
Shale might provide the flexibility to meet reduction targets at lower costs today, making it a strong “bridge” in the short term to a low-carbon future. But the report concludes that we can’t let “the greater ease of the near term … erode efforts to prepare a landing at the other end of the bridge.”
Peter Dizikes, MIT News Office
As deficit hawks appear poised for victory at the polls, the MIT economics professor presents the case for more spending on infrastructure and R&D.
Government deficit spending has been a contentious issue during this year’s U.S. mid-term election campaigns. Yet some economists believe that additional government spending in certain areas is needed to help spur growth. MIT News asked Michael Greenstone, MIT’s 3M Professor of Environmental Economics, and director of The Hamilton Group, a Washington-based public-policy organization, about America’s spending priorities.
As U.N. negotiations begin this week on a global mercury treaty, an MIT atmospheric scientist explains the challenges ahead.
The first United Nations negotiating session for a global, legally binding mercury treaty begins today in Stockholm. Continuing through Friday, this is the first of five planned negotiating sessions that will address global controls on mercury, a toxin that causes neurological damage and impairs brain development in infants and children around the world. The sessions are expected to result in a global treaty to be signed in late 2013 that will address the emissions and use of mercury in products, wastes and international trade. Noelle Selin, an assistant professor of engineering systems in MITs Engineering Systems Division, with a joint appointment in atmospheric chemistry in the Department of Earth, Atmospheric and Planetary Sciences, studies the interactions between science and policy in international environmental negotiations. She sat down with MIT News to discuss the first negotiating session, and what she considers to be the biggest hurdles to signing a global treaty, which is "not a given" for the U.S.
Q. What do you see as the biggest challenge in the effort to reduce mercury emissions worldwide?
A. I see two major intersecting challenges: addressing the global spread of mercury emissions from coal-fired power plants in the context of the increasing demand for energy, and dealing with local impacts of mercury contamination.
The single largest source of anthropogenic mercury emissions is power generation, particularly from coal-fired power plants. A growing, worldwide demand for energy is increasing the use of coal, and this trend will lead to more mercury emissions if not controlled. About half of current anthropogenic emissions come from Asia, mostly from China, which is dramatically increasing its use of coal. Much of the coal used in China is also relatively high in mercury content. Recent research shows that future emissions of mercury to the atmosphere significantly depend most on how energy-based industrial development proceeds in Asia.
Dealing simultaneously with both local issues and long-range transport of mercury will also be a critical challenge for an international agreement. Mercury emitted in elemental form travels worldwide. At the same time, some other forms of emitted mercury deposit close to emission sources. Local impact also comes from the use of mercury in processes and products. Mercury is used extensively in artisanal gold mining in developing countries. Workers and local communities are exposed to some of the highest levels of mercury contamination in the world. Mercury also continues to be used in products, such as thermometers, thermostats, fluorescent light bulbs and a wide range of electronic equipment, including computer monitors and cell phones. Disposal of these products, particularly electronic waste (e-waste) in developing countries, can expose local populations to mercury.
Q. Even if an international treaty is passed, how will it be implemented or enforced?
A. In general, implementation and enforcement of international environmental agreements are difficult. Some countries simply do not have the intention or political will to meet their obligations. Furthermore, many developing countries lack the financial resources and technical capacity to effectively implement international environmental regulations. For this reason, some environmental agreements include mechanisms for capacity building, as well as the provision of financial assistance. However, this is often one of the most contentious topics of negotiation, and the availability of necessary resources for implementation are often limited as many developing countries argue that industrialized countries do not provide enough support for capacity building.
Another implementation challenge will be coordinating an international mercury treaty with other environmental agreements that already partly cover mercury and other hazardous substances. The Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal controls the international trade and management of hazardous waste including waste containing mercury. The Rotterdam Convention on the Prior Informed Consent Procedure for Certain Hazardous Chemicals and Pesticides in International Trade sets out provisions for the import and export of hazardous chemicals, including mercury. Coordination with these two agreements will be important in addressing the entire life cycle of mercury, including mining and production, use, emission, disposal and cleanup.
Q. How would an international treaty affect developed countries like the U.S. that already regulate mercury emissions? How do current laws in the U.S. regarding mercury emissions and use compare to other industrialized nations?
A. The U.S. regulates mercury emissions from municipal-waste combustion and medical-waste incineration, but does not currently regulate mercury emissions from coal-fired power plants, which are the largest domestic mercury emission source. This is an area where U.S. regulations should be strengthened; the EPA is currently developing power-plant emissions standards for mercury.
European countries also have stronger regulations than the U.S. on mercury in many products, including a large number of common electronic goods. Sweden, for example, has banned mercury in almost all products, but there are some exceptions, including the use of mercury in compact fluorescent light bulbs. In the U.S., many efforts to phase out mercury in products are voluntary, although some states have more stringent regulations. In fact, California has largely copied European Union regulation on mercury and other hazardous substances in electronics, going beyond federal requirements.
For the U.S., any treaty ratification requires the advice and consent of the Senate, and must be approved by two-thirds of all senators. Over the past few decades, this has been an obstacle for U.S. participation in many multilateral environmental agreements. As a result, the U.S. has not ratified several important environmental treaties, including the Basel and Rotterdam conventions. Domestic politics is likely to be a continuing challenge for U.S. implementation of environmental regulations and international cooperation on mercury, and it is not a given that the U.S. would become a party to a mercury treaty.
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The co-director of MIT's Global Change program discusses what to expect from the U.N. Climate Change Conference, and the effects of 'Climategate'
Delegates from around the world began meeting this week in Copenhagen to try to work out a new U.N. pact to address global climate change. Henry Jacoby, co-director of the MIT Joint Program on the Science and Policy of Global Change and professor of management at the Sloan School of Management, talks about what to watch for at the December 7-18 conference, and what the repercussions may be from the recent release of hacked e-mails and other documents from the University of East Anglia relating to climate-change research. Climate-change skeptics have dubbed the affair “Climategate” and say the materials show a scientific conspiracy to exaggerate the risks of climate change. Many in the scientific community, however, say the release of documents represents a smear campaign.
Q: Expectations about the Copenhagen climate meeting seem to have been on a roller-coaster ride. What is your sense at this point of what will come of this meeting?
A: The original objective and expectation, back when the negotiating text for this meeting was agreed in Bali, was that they would have some kind of binding commitments by developing countries, some agreement to actions by developed countries, and agreement on financial transfers. That’s what they were supposed to do. We aren’t going to be able to do that, for a couple of reasons. [More... ]
Q. How serious are the revelations in the so-called “Climategate” release of e-mails, and what effect do you think that may have on Copenhagen or on other attempts to deal with climate-change issues?
A. There are several ways of thinking about that. Is it a serious challenge to the science of this issue? The answer is no. This is kind of a peek under the blanket of a discussion that went on 10 years ago, about the analysis of tree rings and other data, to try to reconstruct temperature histories over the last thousand years. The work led to the conclusion that the current temperature rise over the last 50 years is both unique in its pace, and has produced temperatures higher than we’ve seen in the last thousand years.
There has been a lot of analysis of that issue since, by other groups, reaching similar conclusions. Also, the basis of our work, as we develop our impression of the risk, does not depend on that data. It depends on much more firm temperature information from the last 150 years. So in terms of its effect on the science, I don't believe it's serious.
It is unfortunate, however, that this has an effect on politics in the U.S. It makes it appear that there's some conspiracy of scientists here. Scientists talk to each other in informal ways. A lot of words they use appear different in public than what they were intended to be. And to some degree this email file is being purposefully misinterpreted, creating an impression that's really unfortunate. But it is true that these scientists should have been more careful — they didn't understand, I think, when they were doing this original work, how important this would be in the political discussion. It provides ammunition to people who argue climate is not a problem, and confuses the public. How serious that is, I don't know. [More... ]
Q. How urgent is the need for action on climate change, in your view? That is, if the world fails to adopt specific, binding targets for reduction of greenhouse gases at this meeting, how serious could the consequences of that be?
A. This is a century-scale problem, so it's not exactly a matter of what you do this year. But we've been at this for 20 years, and we haven't done very much yet. What's important is to get started. We have a lot to learn about the costs of mitigation, and we have to learn even more about the climate system, but waiting to find out before taking action can be costly.
We need to do something to reduce the impact of human activities over a timescale of many decades, but the decades are going by. It's not crucial what we do in 2009 or 2010, but it's quite important that we get started on some serious measures to decrease emissions, and create the international structure, and domestic policies, to have some chance for sustained action over many decades. It’s just a matter of lifting one foot to take the first step now. Long-term targets, say for specific reductions by 2050, have their purpose in terms of motivating people. But the main thing is we’ve got to agree to do something in the short run, on critical issues like what the United States is going to do, and what the relationship is going to be between the developing and developed countries. So achievements this year or next year are not crucial, but failing to get the process on track would be very serious.
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MIT’s Joint Program on the Science and Policy of Global Change has pegged the annual cost of the proposed cap-and-trade legislation in Congress at $400 per U.S. household. But estimating the cost of doing nothing is far more difficult.
Sergey Paltsev, a principal research scientist in MIT’s Joint Program on the Science and Policy of Global Change, was the lead author of a recent report that analyzed the costs of climate legislation currently being debated in Congress. The analysis looked at the costs associated with the Waxman-Markey bill that was passed in June, and found the bill’s cap-and-trade provisions would have an average annual cost per U.S. household of $400. The study did not provide a comparison of what costs would be for a “no policy” case — in other words, the costs that would result from unmitigated climate change, or from other causes such as air or water pollution that might be associated with unregulated burning of fossil fuels.
Q: Have there been any changes proposed since the original bill was passed, or that are currently under discussion, that would make much of a difference in this cost estimate, one way or the other?
A: Currently, the already-passed Waxman-Markey bill and the Senate version, the Kerry-Boxer bill, are similar in emissions-reduction targets and total offsets. There are some minor differences, but unless major changes are proposed during the discussions in the Senate, the overall costs are similar. It should be noted that now the heat of the discussions are on the emission allowance allocation, which would determine who gets the emissions rights for free, who has to pay for them, and how the permit revenue will be spent. The outcome of this process would benefit or hurt certain industries or households of different income classes. The decisions about revenue allocation would affect who gains and who loses more, and as the stakes are high, there are many parties trying to influence the outcome. But the average economic burden, which is what we calculated, is not much affected by the allowance allocation.
Q: Apart from measures that are specifically being considered now, did your analysis suggest any different approaches, or modifications of the present proposal, that would bring about any significant reduction in these costs?
A: We have done other studies where we have considered issues related to the design of cap-and-trade or carbon tax systems. Ultimately, the cost of the policy is determined by the reduction targets, the possibility of banking or borrowing of permits over time, the amounts of offsets, and any additional measures directed at greenhouse gas reduction, such as renewable electricity standards, subsidies to carbon-free technologies, building standards, energy efficiency measures, etc. For the same reduction targets, overall costs are lower if there are fewer additional measures. However, these additional measures are popular because they allow hiding the true cost of the policy. For example, renewable electricity standards would reduce carbon price but increase the overall cost to the economy. As carbon price is a more visible indicator and overall cost is harder to measure, legislators might prefer to introduce such standards despite their economic inefficiency, simply because they create an illusion of achieving a target at a lower cost. At the same time, as I have already mentioned, distribution of allowance revenue could reduce the impact on, for example, low-income families or coal-producing regions, and we have a forthcoming study addressing this issue.
Q: Can you address how the costs that could result from a “no policy” case might compare with the costs of the proposed regulations?
A: In the case of “no climate policy,” I think it is more appropriate to talk about "damages" instead of “costs,” because there are some things that can be easily associated with dollar amounts and there are other things that are harder to quantify and to put a price tag on. At the MIT Joint Program we have done studies where we are trying to quantify the costs associated with the impacts of climate change on agriculture and coastal infrastructure, and of air pollution on human health. These are easier to quantify. However, there are many other important effects that cannot be convincingly put into a dollar measure, and for this reason we have not tried to estimate the economic and environmental effects of a no-policy path. Consider, for example, the main icon of a climate change — polar bears. How can one put an appropriate cost in dollar terms for a potential disappearance of polar bears due to melting Arctic ice? Or, as another example, on a coral bleaching due to increasing ocean temperature and acidification? Some people even argue that climate change is a strategic problem that should not be considered in terms of a traditional “benefit-cost” approach.
In our analysis of the Waxman-Markey bill we focus on estimating costs of the stated targets. We always stress that there are many uncertainties in our cost estimates and we try to quantify these uncertainties, but the uncertainties in the damages estimates are much larger.
Some people argue about yet another aspect of the problem. Societies have many important issues where resources are needed — to name just a few, a fight against hunger and poverty, improved access to medical facilities and education, fighting AIDS and malaria, and providing a better water supply. Climate change is an important problem, but is it diverting resources from other no-less-important problems? There are plenty of links between climate change, poverty, water supply, and diseases — but with scarce resources, is it better to focus on solving climate change or, for example, directly on fighting poverty? Obviously, we should try to do both. But where should the emphasis be? These are tough questions: How do we equate a potential loss of life of a polar bear with that of a hungry child in Africa now?
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