LesteDDDr

WORKSHOPPROCEEDINGS
AssessingtheBenefitsofAvoidedClimate
Change:CostBenefitAnalysisandBeyond

TheEconomicsofClimateChangeImpacts:
ACaseStudyontheMotivationforGovernment
DecisionstoLimitGreenhouseGasEmissions

JamesLester
JoelB.Smith
StratusConsulting,Inc.

May2010


ThisworkshopwasmadepossiblethroughagenerousgrantfromtheEnergyFoundation.
EnergyFoundation
301BatterySt.
SanFrancisco,CA94111

WorkshopSpeakers
DavidAnthoff,EileenClaussen,KristieEbi,ChrisHope,RichardHowarth,Anthony
Janetos,DinaKruger,JamesLester,MichaelMacCracken,MichaelMastrandrea,
SteveNewbold,BrianONeill,JonORiordan,ChristopherPyke,MarthaRoberts,
SteveRose,JoelSmith,PaulWatkiss,GaryYohe

ProjectDirectors
SteveSeidel
JanetPeace

ProjectManager
JayGulledge

ProductionEditor
L.JeremyRichardson

ContentEditors
JayGulledge,L.JeremyRichardson,LiwaywayAdkins,SteveSeidel

SuggestedCitation
Lester,J.andJ.B.Smith.2010.TheEconomicsofClimateChangeImpacts:ACaseStudyon
theMotivationforGovernmentDecisionstoLimitGreenhouseGasEmissions.In
AssessingtheBenefitsofAvoidedClimateChange:CostBenefitAnalysisandBeyond.
Gulledge,J.,L.J.Richardson,L.Adkins,andS.Seidel(eds.),ProceedingsofWorkshop
onAssessingtheBenefitsofAvoidedClimateChange,March1617,2009.Pew
CenteronGlobalClimateChange:Arlington,VA,p.1737.Availableat:
http://www.pewclimate.org/events/2009/benefitsworkshop.

Thecompleteworkshopproceedings,includingvideoof17expertpresentations,thissummaryreport,
andindividualoffprintsofexpertpapersareavailablefreeofchargefromthePewCenteronGlobal
ClimateChangeathttp://www.pewclimate.org/events/2009/benefitsworkshop.

May2010

PewCenteronGlobalClimateChange
2101WilsonBlvd.,Suite550
Arlington,VA22201

18 Lester&Smith:CaseStudyonPreviousGovernmentDecisions | PewBenefitsWorkshop

TheEconomicsofClimateChangeImpacts:
ACaseStudyontheMotivationforGovernment
DecisionstoLimitGreenhouseGasEmissions


JamesLesterandJoelB.Smith
StratusConsulting

Abstract
IntheyearssincetheadoptionoftheKyotoProtocol,manydevelopedcountriesand
regionalandstategovernmentshavebeguntakingmoreambitiousactiononclimate
changebysettingtheirownemissionreductiongoalsandenactingavarietyofgreenhouse
gas(GHG)emissionsreductionpolicies.Whilemanyofthesedecisionshavebeenbasedon
aprecautionaryoutlooktoavoiddangerousclimatechange,policymakersarealso
evaluatingthecostsandbenefitsofemissionsreductionsattheglobalordomesticlevels,
andinsomecasesboth.

Thisreportreviewsthreecasestudiesrepresentingdifferentgovernmentdecisions:the
UnitedKingdom,Australia,andtheStateofCalifornia.Thesegovernmentsusedeconomics
asmotivationforthedevelopmentofmitigationpoliciesandhavebeenamongtheleaders
inadoptingambitiousgoalsforGHGemissionsreductions.Theyhavealsoundertakenan
extensiveanalysisofpotentialimpactsandinsomecases,haveattemptedtoestimatesome
oftheresultingglobalandlocaleconomicdamagesfromclimatechange.Whileitappears
thatnoneofthegovernmentsundertookaformalbenefitcostanalysisusingthefuture
benefitsofavoidedclimatechangetosetitsGHGreductiontargets,theestimationofthe
benefitsofavoidedimpactsmayhaveplayedaroleinjustifyingclimatepolicies.

PewBenefitsWorkshop|Lester&Smith:CaseStudyonPreviousGovernmentDecisions 19


Introduction
Manygovernmentsatthenationalandsubnationallevelshaveadoptedgreenhousegas
(GHG)emissionsreductionstargets.Informationonclimatechangeimpactshasinformed
governmentleveldiscussionsonmitigationandhasquitelikelycontributedtothe
adoptionofarangeofmitigationmeasures.Forexample,EuropeanUnion(EU)countries
suchasTheNetherlands,andU.S.statessuchasWashingtonandMassachusetts,have
adoptedmitigationmeasureswiththeaidofimpactassessments.Themotivationfor
adoptingsuchtargetshasbeentoavoidtheadverseimpactsofclimatechange.For
example,theEUhasadoptedagoaloflimitingtheincreaseinglobalmeantemperatureto
2Cabovepreindustriallevels(EC,2007).EventheU.S.SupremeCourthasacknowledged
thatfutureimpactsmustbetakenintoaccountinpolicydecisions.Theyruledin
Massachusettsv.theU.S.EnvironmentalProtectionAgency(EPA)thatEPAsrefusalto
regulatecarbondioxide(CO2)hasledtoactualandimminentharm,mainlyintheform
ofrisingsealevelsalongthestatescoast.Therulingalsonotedtheharmsassociatedwith
climatechangeareseriousandwellrecognized(Pew,2007).
AsothergovernmentssuchastheUnitedStatesaddressnationalgoalsforGHGemissions,
animportantmatteriswhetheritisnecessarytoquantify,andmorespecificallymonetize,
theimpacts(oftentimesreferredtoasdamages)fromclimatechangetojustifyemissions
reductions.Suchanalysiscanbeusedtocomparemonetarybenefitsofemissions
reductions(i.e.valueofavoidedimpacts)withthecostsofemissionscontrols.Asaresultof
theSupremeCourtruling,inJune2008,EPAsTechnicalSupportDocumentonBenefitsof
ReducingGHGEmissionsoutlinedkeyconceptsandstrategiesforestimatingthesocial
costofcarbonvalues(RobertsandSpencer,2008).
Thisreportexplorestheeconomicmotivatingfactorsbehindselectgovernmentsactions.In
particular,itwilladdresswhetherestimatesoftotaldamagesfromclimatechange(and
benefitsfromavoidingclimatechange)weredevelopedandwhetherthoseestimateswere
usedtoorinformedsettingofGHGreductiongoalsortargets.Thisreportreviewsthree
casestudiesrepresentingdifferentgovernmentdecisions:theUnitedKingdom(UK),
Australia,andtheStateofCalifornia.Itwillexplorehowthesegovernmentsused
economicsasmotivationforthedevelopmentofmitigationpolicies.
Climateagreementsandpolicieshaveoftennotutilizedeconomicanalysis.TheUnited
NationsFrameworkConventiononClimateChange(UNFCCC)hasbeenthecenterpieceof
globaleffortstocombatclimatechange.In1997,theUNFCCCConferenceofPartiesagreed
ontheKyotoProtocol.Underthisprotocol,industrializedcountriesagreedtoreducetheir
collectiveGHGemissionsby5.2percentcomparedtoyear1990levelsby2008to2012
(UNFCCC,1997).Ratherthanformallymeasuringthecostsandbenefitsofthetargeted
reduction,UNFCCCpolicymakersdecidedonwhatisknownasaprecautionaryapproach.
Theprecautionaryprinciplestatesthatwheretherearethreatsofseriousorirreversible
damage,thelackoffullscientificcertaintyshouldnotbeusedasareasonforpostponing

20 Lester&Smith:CaseStudyonPreviousGovernmentDecisions | PewBenefitsWorkshop


suchmeasures,takingintoaccountthatpoliciesandmeasurestodealwithclimatechange
shouldbecosteffectivetoensureglobalbenefitsatthelowestpossiblecost(UNFCCC,
1992).
AlthoughitdidnotrecommendalevelatwhichGHGsshouldbestabilized,the
IntergovernmentalPanelonClimateChange(IPCC)foundthatsubstantialreductions,well
belowthoserequiredundertheKyotoProtocol,wouldberequiredtoavoidmanyadverse
impactsofclimatechange.Forexample,theloweststabilizationlevelanalyzed,acarbon
dioxideequivalent(CO2e)concentrationlevelof350to400partspermillion(ppm),would
resultinglobaltemperatures2to2.4Cabovepreindustriallevels(theEUtarget),and
wouldnecessitatea50to85percentreductioninGHGemissionsbelow2000levelsby
2050(IPCC,2007a).TheIPCCestimatedthatsuchreductionscouldbeachievedatan
annualcostofaround0.1percentofgrossdomesticproduct(GDP).Itdidnotestimatethe
valueofavoidedclimatechangeimpacts.
IntheyearssincetheadoptionoftheKyotoProtocol,manydevelopedcountriesandeven
regionalandstategovernmentshavebeguntakingmoreambitiousactiononclimate
changebysettingtheirowngoalsaboveandbeyondtheKyotoProtocolandenactinga
varietyofGHGemissionsreductionpolicies.Indeed,manynationsandsubnational
governmentshaveadoptedthe2Ctarget.Whilemanyofthesedecisionshavebeenbased
onaprecautionaryoutlooktoavoiddangerousclimatechange,policymakersarealso
evaluatingthecostsandbenefitsofemissionsreductionsattheglobalordomesticlevels,
andinsomecasesboth.Thisreportanalyzesthemotivationsforsuchactionbyafew
governments:theUK,Australia,andCalifornia.Thesegovernmentshavebeenamongthe
leadersinadoptingambitiousgoalsforGHGemissionsreductions.Theyhavealso
undertakenanextensiveanalysisofpotentialimpactsandinsomecases,haveattemptedto
estimatesomeoftheresultingglobalandlocaleconomicdamagesfromclimatechange.
Theseimpactsincludeamongothers;increaseddroughts,ariseinsealevels,andan
increaseinheatrelatedillnessanddisease.Theeconomicdamagesincludechangesin
energydemand,reducedagricultureoutput,andincreasedinfrastructuredamageand
healthcarecosts,amongmanyothereconomiccosts.Thisreportexaminestheanalyses
doneandattemptstoassesswhetherandtowhatdegreeeconomicanalysisofclimate
changeimpactsinfluencedtheselectionofmitigationtargets.

ClimateChangeEconomics:MeasuringtheCostsandBenefits
Thissectionbrieflyexplainssomeconceptsthatsomereadersmayfindusefulin
understandingthisreport.Akeycomponentofestimatingfuturecostsofclimatechange
areimpactassessments.Impactassessmentsaredetailedestimationsoftheconsequences
offutureclimatechangeandsealevelriseonecosystems,waterresources,agricultureand
foodsecurity,humanhealth,coastal,andothersectors.Outputsfrommodelsofthe
estimatedclimateimpactscanbeenteredintosocioeconomicmodels(integrated

PewBenefitsWorkshop|Lester&Smith:CaseStudyonPreviousGovernmentDecisions 21


assessmentmodels1)whichlinkclimate,impactsandeconomiccostsintoanintegrated
systemtoestimatetheeconomiceffectsoftheseimpacts(RobertsandSpencer,2008).
Nationalstudiescanalsoutilizeimpactstudiescombinedwithgeneralcirculationmodels
(GCM)toestimateregionalornationalmarketimpacts.Theresultsofthesemodelscan
helpanalystsestimateeconomiclosses.Usingsomeoftheseconceptsandtools,
governmentssuchastheUK,Australia,andCaliforniahavehelpedestablishthatclimate
mitigationisvitaltothelongtermhealthofitseconomies.
Estimationsofeconomiclossesfromclimatechangetypicallyincludemorethanfinancial
impacts.Climatechangelossesincludefinancial(market)impactssuchasincreasesincrop
prices,costsofbuildingseawalls,andthevalueofinundatedcoastallands.But,anumber
assessmentsofclimatechangelosses(e.g.,NordhausandBoyer,2000;Tol,2002)include
estimatesofsocallednonmarketimpactssuchaslossofecosystemsandnonmarket
valuesofhumanlife.Someoftheseassessmentalsoincludeinsurancevaluesthatdescribe
howmuchwearewillingtopaytoavoidasmallprobabilityofahighlydamagingor
possiblycatastrophicoutcome(Garnaut,2008).Nonmarketimpactsaffectecosystemsor
humanwelfare,butarenoteasilyexpressedinmonetaryterms(IPCC,2007).Thesenon
marketimpactsaretypicallycombinedwithfinancialormarketimpactstoestimatetotal
economicimpacts.ThetotalvaluesareoftencomparedtoGDP,eventhoughasignificant
portionofthetotaldamageswouldnotbeseenintypicalGDPaccounts.
Besidesestimatingthevalueoftotaldamages,anothertoolforexpressingclimatechange
damagesthathasbeenwidelyemployedisestimatingthedamagesfromemissionsofton
ofcarbon.Therightpriceofcarbonisoftencalledthesocialcostofcarbon(SCC),which
canbeinterpretedasameasureofthemarginaldamagesfromemissionofanadditional
tonofcarbon.Conversely,itcanbethoughtofasthebenefitofavoidingemissionofa
marginaltonofcarbon.Inotherwords,theSCCsignalswhatsocietyshouldbewillingto
paynowinordertoavoidfuturedamagescausedbyincrementalCO2eemissions(DEFRA,
2007).Oneofthemanycomplexissuesthatfacedecisionmakersisthatthecostsof
mitigationcomemuchearlierthanthebenefitsofavoidedclimatechange.Economists
consideradollarinfutureyearstobelessthanadollartoday,becauseadollartodaycanbe
investedandgrowovertime.Futuredamagesfromclimatechangearereduced(inpresent
value)thefurtherintothefuturetheyoccur(DEFRA,2007). 2
Anotherimportantissueisthattheimpactsofclimatechangeareunlikelytobeevenly
distributed,eitherbetweenregionsorbetweenincomegroups.Alossofincomeamong
poorpeopleorinpoorcountrieswillbemoreharmfulthanthesamelossofincomeamong
wealthierindividualsorcountries(Garnaut,2008).Toaddressthis,economistsusean
approachcalledequityweighting,whichgivesmoreweighttoimpactsonpoorercountries
andindividuals.TheapplicationofequityweightingcandramaticallyaffectSCCvalues.

1
SeethepaperbyMastrandreainthisvolumeforanoverview.
2
Notethatthereissubstantialcontroversyoverwhatdiscountratesareappropriatetouseforintergenerational
consequencesofgreenhousegasemissions(Newell&Pizer,2003).

22 Lester&Smith:CaseStudyonPreviousGovernmentDecisions | PewBenefitsWorkshop


Applyingappropriatediscountratesandequityweightingtechniquesisacomplexand
highlydebatedtopic.Differentchoicesoftheseratescanresultinwidelyvaryingestimates
ofSCC(WatkissandDowning,2008).
Thefollowingcasestudiesexaminehowsomeprominentgovernmentshaveattemptedto
measurethecostsandbenefitsofmitigatingclimatechange.Whilethesegovernmentsdid
notperformaformalenvironmentalbenefitcostanalysis,theydidtrytoestimatethecosts
ofclimateimpacts,andcouldusetheseestimatesasmotivationorjustificationtopass
climatelegislationorannounceemissionsreductiontargets.

CaseStudy1:UnitedKingdom
Overview
TheUKhasforthelastdecadebeenagloballeaderindevelopinganunderstandingofthe
costsandrisksofclimatechangebysponsoringleadingresearchintobothmitigationand
adaptation.ExamplesincludetheimplementationofanofficialSocialCostofCarbonin
2002(GES,2002),therecentgovernmentcommissionedSternReviewontheEconomicsof
ClimateChange(Stern,2006),andtheresearchoftheUKClimateImpactsProgramme
(whichstartedin1997),whichbringstogetherthescientificevidenceforclimatechange
impactsandadaptationintheUK.TheUKhastakenseveralstepstomeasurebenefitsand
coststhatcouldjustifyitsstatedclimatetargets.
TheDepartmentforEnvironment,FoodandRuralAffairs(DEFRA)publisheditsfirst
nationalassessmentofthepossibleimpactsofclimatechangeontheUK,theClimate
ChangeImpactsReviewGroup(CCIRG)reportin1991,followedbyasecondCCIRGreport
in1996(CCRIG,1996).TheUKsignedtheKyotoProtocolinthespringof1998,withformal
ratificationin2002.TheUKstargetofGHGemissionsreductionsundertheagreementwas
a12.5percentreductionby20082012comparedto1990levels(DEFRA,2007).This
commitmentledtothedevelopmentoftheUKsfirstnationalClimateChangeProgramme
inNovember2000.Theprogramidentifiedboththerisksassociatedwithclimatechange,
andalsoarangeofpolicymeasuresandinitiatives.Theseincludedinnovativenewpolicy
measures,aclimatechangelevy(ataxonelectricity),climatechangeagreementswith
industry,andaUKemissionstradingscheme.Climatechangealsoplayedamajorrolein
shapingtheinfluential2003EnergyWhitePaper,whichproposeda60percentreduction
ofCO2emissionsrelativeto1990levelsby2050(UK,2003).
InNovember2008,theUKpassedtheClimateChangeAct2008,whichcreatedtheworlds
firstlongterm,legallybindingframeworktoreduceGHGemissionstoatleast80percent
by2050(DEFRA,2008)andatleasta26percentreductioninCO2by2020withthe2020
targettobeupdatedfollowingadvicefromtheClimateChangeCommittee(CCC),an
independentbodysetupaspartoftheAct.TheCCChasrecommendedtwosetsofcarbon
budgets:theIntendedbudget,whichwillapplyfollowinganewglobaldealonclimate
change;andtheInterimbudget,whichwillapplybeforeaglobaldealisreached.As

PewBenefitsWorkshop|Lester&Smith:CaseStudyonPreviousGovernmentDecisions 23


proposedbytheCCC,theIntendedbudgetwouldrequireanemissionsreductionof42
percentin2020relativeto1990,andtheInterimbudgetwouldrequireanemissions
reductionof34percentin2020relativeto1990(CCC,2008a).Thesetargetslinktothe
recentlyadoptedEuropeanCommission2020targetofatleasta20percentreductionin
GHGemissionsby2020on1990levelsrisingto30percentifthereisaninternational
agreement,andtheUKspotentialsplitofthistargetundertheburdensharingagreement.
TheUKGovernmentiscurrentlyreviewingtheCCCadvice,andannounceproposalsforthe
levelofthefirstthreecarbonbudgets(200812,201317and201822)intheSpringof
2009.
StudiesofClimateChangeImpactsandEconomicCosts
Anumberofstudiesofclimatechangeimpactshavebeenundertakentohelpunderstand
howtheUKwillbeaffectedbyclimatechange.Aqualitativeimpactstudyhasalsobeen
completedforeachregionintheUK,andanumberofquantitativeandeconomicsector
specificstudieshavebeenundertakenaswell.Therehasbeenonecrosssectoralanalysis
oftheeconomicimpactsintheUK(Metroeconomica,2006).TheUKClimateImpacts
Programmeproducedguidelinesthatdescribeamethodologyforcalculatingthecostsof
climateimpactsandexplainshowtocomparethesetothecostsofadaptationmeasures
(UKCIP,2004).
TheSternreviewistheoneofthemorecomprehensivereviewsontheeconomiccostsof
climatechange.Althoughthereviewtookaglobaloutlook,ithasbeenveryinfluentialinUK
policysinceitspublicationin2006.Thereviewmadeuseofmanyimpactstudiesand
estimatesthatthecostofinactiononclimatechangesignificantlyoutweighstheprojected
costofcoordinatedglobalaction,contingentonthespecificassumptionsitmade.The
reviewpredictsthatthevalueofthedamagesfromunmitigatedclimatechangecouldbe
significantlymore(upto5to20percentofGDP)thantheglobalcostofactiontostabilize
atmosphericconcentrationsofGHGsat550ppmCO2e(Stern,2006).
Thereviewconsideredtheeconomiccostsoftheimpactsofclimatechangeforbusinessas
usualgrowthandthecostsandbenefitsofactiontoreducetheemissionsofGHGs,butit
doesnotlookatthebenefits(ineconomic)termsofmitigation.Itisimportanttonotethat
therearestillresidualcostsasaresultofmitigation,(Stern,2006):
Itconsideredphysicalimpactsofclimatechangeontheeconomy,humanlife,andthe
environment,andexaminestheresourcecostsofdifferenttechnologiesandstrategies
toreduceGHGemissions
Itincludedintegratedassessmentmodelsthatestimatetheeconomicimpactsof
climatechange,andmacroeconomicmodelsthatrepresentthecostsandeffectsof
thetransitiontolowcarbonenergysystemsfortheeconomyasawhole
ThereviewusedcomparisonsofthecurrentlevelandfuturetrajectoriesofSCCwith
estimatedmarginalabatementcost.

24 Lester&Smith:CaseStudyonPreviousGovernmentDecisions | PewBenefitsWorkshop


OnecontroversialaspectoftheSternReportwasitsuseofalowdiscountrate.Many
expertsarguethatthereviewadoptedaglobalratherthananationalperspective,with
substantialaversiontorisk,andconsiderationofintertemporalandgeographicalequity
(WatkissandDowning,2008).Therefore,alowerdiscountrateandequityweightingwas
usedthanmostUKestimates,resultinginarelativelyhighestimateofdamages.Theuseof
suchalowdiscountratehasbeencriticizedbyanumberofeconomists(e.g.,Yohe,2006;
Nordhaus,2007).
Usinganintegratedassessmentmodel,Sternestimatedthecostofbusinessasusual
climatechangetoequatetoanaveragereductioninglobalpercapitaconsumptionof5
percentataminimum.Sternestimatedeconomicandnoneconomic(nonmarket)costs,
andalsodiscontinuitiesintoitsanalysis.Itestimatedthatthepotentialscaleoftheclimate
responsecouldincreasethecostofclimatechangefrom5to7percent,andnonmarket
costscouldincreasesthetotalcostofunmitigatedclimatechangefrom5to11percent
(Stern,2006).Thereviewalsodescribeshowmanyimportanteffectsareomittedfromthe
analysisbecauseofuncertainty.Costestimateswouldincreaseiftheanalysisincorporated
effectssuchasdistributionalimpacts,dynamicfeedbacks,andsocialcontingentimpacts.
TheSternreviewalsoinfluencedtheSocialCostofCarbonusedinUKgovernment.In2002,
theUKGovernment(GES,2002)recommendedanillustrativemarginalglobalSCC
estimate,basedontheeconomicliteratureatthattime,foruseinpolicyappraisalacross
Government(anillustrativemarginalglobalSCCestimateof703/tonneofcarbon(tC),
withinarangeof35to140/tC,risingat1/tCperyearfromtheyear2000).TheseSCC
valueshavebeenusedwidelyinregulatoryimpactappraisalandintheconsiderationof
environmentaltaxesandcharges,thoughitwasnotusedtosetmediumorlongterm
greenhousegasemissiontargets.TheresultsoftheSternreviewwereusedtoupdatethis
value..TheSternreviewarrivedatavaluefortheSCC(at60/tCO2or218/tC)thatwas
severaltimestheexistingUKSCCandthewiderliterature,eventhoughtheSternanalysis
usesmanyofthesamemodelsanddamagefunctions.
However,afurthermodificationwasmadetotheSternSCCvaluebeforeimplementation.
TheUKGovernment(DEFRA)modifiedtheSternestimateintoanofficialshadowpriceof
carbon(SPC)byusingaSternSCCestimatethatassumestherecommendedStern
emissionsstabilizationtrajectory,basedona550ppmCO2efuture(DEFRA,2007).This
reducestheSCCvalueto30/tCO2foracurrentemission4.Thisdiffersfromatraditional
shadowprice,whichusuallyisdeterminedbytheintersectionofmarginaldamagesand
marginalabatementcosts(FOE,2008).WhiletheSCCispurelyameasureofthedamage
causedbycarbonandthemannerinwhichthisisvalued,theSPCisregardedbyDEFRAas
amoreversatileconceptwhichcanbeadjustedovertimetotakeintoaccountpolicy
developmentandtechnologicaladvancement(DEFRA,2007).Governmentministersmust

3
70=$100.23.1GBP=1.43(22609)http://finance.yahoo.com/q?s=GBPUSD=X.
4
TheSternSCCvaluefora550ppmCO2etarget(30/tCO2)wasupdatedfora2007emission,expressedin2007
prices,to25/tCO2e.

PewBenefitsWorkshop|Lester&Smith:CaseStudyonPreviousGovernmentDecisions 25


factoracarbonpricewhenmakingallpolicyandinvestmentdecisionscoveringtransport,
construction,housing,planning,andenergy(Wintour,2007).TheUKTreasurysGreen
BookguidanceadoptstheSPCasthebasisforincorporatingcarbonemissionsinproject
levelbenefitcostanalysisandregulatoryimpactassessments(PWA,2008).

AnalysisofMitigationPolicies
TheImpactAssessmentoftheClimateChangeBill,publishedin2007,containsahigh
leveldiscussionofthecostsandbenefitsofUKactiontomitigateclimatechangetoa
degreeconsistentwiththegovernmentsestablishedmediumandlongtermobjectives,
alongwithananalysisofthekeydriversanduncertaintiessurroundingtheseassessments
(UK,2007).Theassessmentdrawsonarangeofdifferentmodelingresultsapplicableto
boththeUKeconomyanddrawsonanalogousmitigationcoststudiesinotherdeveloped
countries.TheimpactassessmentincludesresearchundertakenaspartoftheSternreview,
togetherwithanalysisconductedforthe2007EnergyWhitePaper(UK,2007).
TherecentlypassedClimateChangeActrequiresthatemissionsbereducedbyatleast80
percentby2050,comparedto1990levels(DEFRA,2008).Inmeetingtheserequirements,
thegovernmentfocusedonGDPimpactsofthecarbonbudgets,whichwasestimatedusing
threealternativemodels(resourcecost,macroeconometric,andgeneralequilibrium).The
governmentusedtheMARKALMacromodel,whichfocusesonlongrunmitigationcostsof
meetingthe2050target,aswellasastudyconductedbyOxfordEconomicstoexplorethe
potentialshortrunadjustmentcostsofmeetinga2020target(DEFRA,2007).
Afterreviewingtheeconomicimpactsofclimatechange,theSternreviewanalyzedthe
costsofmitigationoptions.Thereviewsanalysisfoundthatthecostsforstabilizationat
500550ppmCO2ewerecenteredon1percentofGDPby2050,witharangeofplusor
minus3percentaroundthecentralestimate.Toputintocontext,globalGDPisprojectedto
bearound$100trillionby2050,thusannualcostswouldapproach$1trillion(Stern,
2006).Therangereflectsanumberoffactors,includingthepaceoftechnological
innovationandtheefficiencywithwhichpolicyisappliedacrosstheglobe(Stern,2006).
Theestimatesdonottakecobenefitsintoaccount,forexample,intermsofreducedill
healthandenvironmentaldamagefromreducedairpollutionlevelsandincreasedenergy
security.Thereviewestimatedthatmeetingthestabilizationtargetswouldreducethe
percentagelossofclimatechangeimpactsto0.6percentofglobalGDP.TheSternreport
usesitsestimatesofavoideddamagesresultingfromclimatechangemitigationandweighs
themagainstthecosts,andconcludesthatthecostsofinactionwouldlikelybemuchmore
significantintermsofdamagetotheworldeconomy(Stern,2006).

TheUKsDecisionProcess
AreviewofUKpoliciesoverthepastdecadehavefoundseveraloccasionswherethe
governmentusedaSCCinregulatoryimpactappraisalandintheconsiderationof
environmentaltaxesandcharges.TheUKsmostrecentwhitepaperanalysisoftheClimate

26 Lester&Smith:CaseStudyonPreviousGovernmentDecisions | PewBenefitsWorkshop


ChangeActgoalsconsideredtheSCCintheanalysisofthenecessaryshorttermsteps
towardan80percentreduction,butthevaluewasnotusedexplicitlyinthebenefitcost
analysisofthelongtermgoal(PWA,2008).Sternseconomicanalysisisoftencreditedasa
keymotivationbehindsuchanambitiousmitigationtarget,butinfact,anearlier60
percentlongtermtarget(consistentwitha2degreestarget)precededtheSternreviewby
someyears,andtherewerealreadymovestoconsiderupdatingthetarget,duechangesin
thescience(i.e.thata60percentreductionwouldnotachievetheprevious2degrees
ambitionlevel;IPCC,2007c).Whileitcomparesthecostsofinactionagainstthecostof
takingactionanddoesnotincludespecificestimatesofavoideddamages,thereal
justificationforactionisfocusedonamultiattributeanalysisthatshowsstabilization
levelsandprobabilityrangesfortemperatureincreases.Yet,asstatedbyEdMiliband,
SecretaryofStateattheDepartmentofEnergyandClimateChange,Thereductions
requiredcanbeachievedataverylowcosttooureconomy:thecostofnotachievingthe
reductions,atnationalandgloballevel,willbefargreater(CCC,2008b).

CaseStudy2:Australia
Overview
TheIPCCreport,ClimateChange2007:Impacts,Adaptation,andVulnerability(IPCC,
2007b),findsthatAustraliaisoneofthemostvulnerableofallindustrializedcountriesto
theimpactsofclimatechange.ThisreflectsAustraliasalreadyvariableandsemiarid
climate,poorsoils,vulnerableecosystems,andahighproportionofthepopulationlivingin
coastalareas.Acomprehensiveeconomicanalysisoftheimpactsofclimatechangewas
commissionedbythegovernment,knownastheGarnautClimateChangeReview(Garnaut,
2008).ThereviewfocusedoneconomicimpactsonAustralia,butalsoincludedglobal
impacts,comparedtotheSternreview,whichtookasolelyglobaloutlook.Thereviewwas
highlyinfluentialintheAustraliangovernmentsmostrecentclimatereductiontarget.
WhiletheAustraliangovernmenthasnotbeenasactiveonclimateissuesastheUK,ithas
recognizedtheimportanceofimpactsandadaptationwiththeestablishmentin2004ofa
NationalClimateChangeAdaptationProgram.Thisprogrampreparesallareasof
government,vulnerableindustries,communities,andecosystemstomanagethe
consequencesofclimatechange.TheAdaptationProgramiscloselylinkedwiththe
DepartmentofClimateChange,establishedin2007,whichimprovesthescientific
understandingofthecauses,nature,timing,andconsequencesofclimatechangetobetter
informindustryandgovernmentdecisionmakers.BasedontheGarnautreview,Treasury
modeling,andpreviousclimateimpactsresearch,theAustraliangovernmenthasendorsed
acarbonemissionsreductiontargetof15percentby2020,followingtheintroductionofa
carbontradingschemein2010.Amoreambitious25percentreductiontargetwouldbe
keptopenasapossibilityiftheinternationalcommunityagreestoambitioustargetsata
UnitedNationsSummitinCopenhagenattheendof2009(Reuters,2008).

PewBenefitsWorkshop|Lester&Smith:CaseStudyonPreviousGovernmentDecisions 27


StudiesofClimateChangeImpactsandEconomicCosts
Inanattempttomeasurethecostsofclimatechange,AustraliaproducedClimateChange:
AnAustralianGuidetotheScienceandPotentialImpactsin2003(AustraliaOfficeof
ClimateChange,2003).Theanalysisfoundthatclimatechangeisprojectedtoincreasethe
severityandfrequencyofmanynaturaldisasters,suchasbushfires,cyclones,hailstorms,
andfloods.Insuredlossesfromtheseeventsareestimatedtototalbillionsofdollars
(AustraliaOfficeofClimateChange,2003).Anupdatetotheanalysisalsoidentifiedthe
followingpotentialeffectsandcostsofclimatechangetoAustraliaseconomy(Australia
OfficeofClimateChange,2008):
Thedroughtthatbeganin2002wasestimatedtocutgrowthinthecountrysGDPby
0.7percentin2007.RestrictionsonwateruseinAustraliancitiesresultingfromthe
currentdroughthavecostaround$900millionayearandaffectedover80percentof
Australiashouseholds.
Thefrequencyofdroughtmayincreasebyupto20percentovermostofAustraliaby
2030,andupto40percentinsoutheastAustraliaand80percentinsouthwest
Australiaby2070.
WaterflowsintotheMurrayDarlingBasin,alreadystressed,areestimatedtodecline
by15percentifthetemperaturewarmsby1C.Reductionsinflowsofaround50
percentarepossiblebytheendofthecentury.IrrigatedagricultureintheMurray
DarlingBasincoulddeclinebyupto92percent.
Ifthetemperaturerisesby2C,nationallivestockcarryingcapacityisprojectedto
decreaseby40percent.
Changesintemperaturesandrainfallareprojectedtoincreaseroadmaintenancecosts
by31percentby2100.
In2004,AustraliareleasedEconomicIssuesRelevanttoCostingClimateChangeImpacts
(AustralianGreenhouseOffice,2004),whichidentifiessectorsoftheAustralianeconomy
thatareparticularlyvulnerabletoclimatechange,andestimatesthecostsofclimate
changeforsomeofthesesectors.Thesectorsreviewedincludeagriculture,biodiversity
(whichincludesnationalreserves,speciesdiversity,andecosystems),coasts(which
includesfisheries,marinelife,theGreatBarrierReef,andcoastalinfrastructure),forests
(whichincludesnaturalandplantationforests),settlements(whichincludesinfrastructure,
localgovernment,planning,humanhealth,transport,energy,andemergencyservices),and
water(whichincludesdrought,waterquality,andwatersupplies)(AustralianGreenhouse
Office,2004).
Buildinguponpreviousimpactsstudies,theGarnautClimateChangeReviewwasan
independentstudycommissionedbyAustraliasCommonwealth,andstateandterritory
governments.ThereviewexaminedtheimpactsofclimatechangeontheAustralian
economy,andrecommendedmediumtolongtermpoliciesandpolicyframeworksto

28 Lester&Smith:CaseStudyonPreviousGovernmentDecisions | PewBenefitsWorkshop


improvetheprospectsforeconomicgrowth.Totestthecaseforaction,thereview
comparedascenarioofnomitigation(orbusinessasusual)andascenarioofa550ppm
future,andcomparedthecostsofmitigationofclimatechangewiththebenefitsofavoiding
climatechange(Garnaut,2008).Thereportestimatedthattheglobalgrossnational
product(GNP)wouldfallbyaround8percentby2100,withlossesindevelopingcountries
likelytobehigherthantheglobalaverage.AmongtheimpactsforAustraliathatthereview
estimatedwerethatunmitigatedclimatechangecausesrealwagestobearound12percent
lowerthantheywouldotherwisehavebeen.Thelargestimpactswerefoundinagriculture
andmining.Garnautfoundthattheeffectsofclimatechangeoninfrastructurethathavenot
beenestimatedcouldsubtractanadditional0.8percentagepointsfromtheGNPbytheend
ofthecentury.Thesenegativeimpactsoninfrastructurehaveasignificanteffecton
Australiasoutputandconsumptionofgoodsandservices,andareresponsibleforabout40
percentoftotalclimatechangecosts.Theinfrastructureimpactsaffectawiderangeof
assets,includingcommercialandresidentialbuildings,watersupplyandelectricity
infrastructure,andports(Garnaut,2008).Garnautdidnotmeasurethenonmarket
impactsandinsurancevalues,butstatesthattheseeffectswillbeverysignificantinano
mitigationfuture.
ThereviewrecommendedthatAustraliapushinternationallyforCO2econcentrationsof
450ppm,whichwouldcommitAustraliatoreductionsof25percenton2000levelsby
2020,and90percentby2050.ItalsorecommendedthatAustraliahaveafallbackposition
of550CO2econcentrations,whichwouldentaila10percentreductioninemissionsby
2020,andan80percentreductionby2050(Garnaut,2008).Garnautfurther
recommendedthat,shouldallnegotiationscollapseattheCopenhagenSummit,Australia
shouldstillreduceitsemissionsby5percentby2020on2000levels.

AnalysisofMitigationPolicies
TheAustralianTreasuryDepartmentpublishedAustraliasLowPollutionFuture:The
EconomicsofClimateChangeMitigationin2008,whichpresentstheresultsofeconomic
modelingofthepotentialeconomicimpactsofreducingemissionsoverthemediumand
longterm(TreasuryofAustralia,2008).Thereportfoundthatearlyglobalactionisless
expensivethanlateraction.Themodelingindicatesthateconomiesthatactearlyface
lowerlongtermcosts;around15percentlowerthanifthecountrydelaysactionuntil
thereisinternationalagreement.ThereportalsoconcludedthataverageannualGNP
growthwillonlybeonetenthof1percentperyearlessthanitwouldbeinaworldwithout
actiontotackleclimatechange(TreasuryofAustralia,2008).
Nationalemissionstargetsarebasedonthepercapitaallocationapproachdevelopedby
theGarnautClimateChangeReview.Australiasemissionsreductiontargetsinthese
scenariosare10percentbelow2000levelsby2020and80percentbelowby2050for
stabilizationat550ppm.Thetargetsare25percentbelow2000levelsby2020and90
percentbelowby2050forstabilizationat450ppm(TreasuryofAustralia,2008).The

PewBenefitsWorkshop|Lester&Smith:CaseStudyonPreviousGovernmentDecisions 29


modelingdoesnotincludetheeconomicimpactsofclimatechangeitself,sodoesnotassess
thebenefitsofreducingclimatechangerisksthroughmitigation.Yetthereportconcludes
thataverageannualGNPgrowthwillonlybe0.1percentperyearlessthanitwouldbeina
worldwithoutactiontomitigateclimatechange.Thereportshowsthatfrom2010to2050,
realGNPpercapitagrowsatanaverageannualrateof1.1percentinthepolicy(GHG
reduction)scenarios,comparedto1.2percentinthereferencescenario.Itstatesthat
takingearlyactionwillallowanorderlyandgradualadjustmenttoalowcarboneconomy,
whilechoosingtodelayingaction,andthenplayingcatchup,willdeliverasharpershockto
theeconomyinthefuture(TreasuryofAustralia,2008).
TheGarnautreviewanalyzesthethreescenarios:thenomitigationscenario,inwhichthe
worlddoesnotattempttoreduceGHGemissions;andthe550and450ppmscenarios,
whichrepresentglobaleffortstoreduceemissionssufficientlytoreachthoseCO2
concentrationlevels.Thereviewseconomicmodelingfocusedonfiveareasofimpact:
primaryproduction,humanhealth,infrastructure,cyclones,andinternationaltrade.
Climatechangeshockswereimposedoneachareatoestimatethelikelymarketcostsof
climatechange(Garnaut,2008).Expectedclimatechangedamagesarelessinthe450
scenariothaninthe550scenario,butonlybyhalfapercentofGNP.Thesmallexpected
marketgainfromthe450scenarioto2100isnotinitselfadequatetojustifytheadditional
mitigationcostsassociatedwithit.Rather,thereportstatesthatstrongermitigationis
justifiedbyinsurancevalueandnonmarketvaluebenefitsinthe21stcentury,andmuch
largerbenefitsbeyond,andthatthecostsofactionarelessthanthecostsofinaction
(Garnaut,2008).
Thereviewconcludesthattherelikelywillbemoretechnologicalprogressthancurrently
anticipatedassumingasignificantandrisingcarbonprice,supportfortheemergenceof
lowemissionstechnologies,andnewpolicies,suchasanemissionstradingscheme,are
permanent.Suchdevelopmentswouldfavora450ppmoutcomeovera550ppmoutcome.
Giventhebenefitsaftertheyear2200ofstrongermitigationandthegreaterrisksof
catastrophicconsequencestothenaturalenvironmentunderthe550ppmscenario,the
reviewjudgesthatitisworthpayinglessthananadditional1percentofGNPasapremium
inordertoachievea450ppmresult(Garnaut,2008).

AustraliasDecisionProcess
WhileAustraliahasnotutilizedadiverserangeofeconomictoolsascomparedtotheUK,
theGarnautreviewisoneofthefirstofitskindtodetailtheeconomicsofclimatechangeat
acountryspecificlevel.AustraliasMinisterofClimateChangeandWater,SenatorPenny
Wong,statedthatthereview,showsthatwhiletherewillbesomeunavoidablecosts
fromclimatechange,thecostsoftakingactiontoreducecarbonpollutionarelessthanthe
coststhatwouldbeincurredifwefailtoact(Australia,2008b).TheAustralian
governmentweighedboththeGarnautreviewandtheTreasurysreportonmitigation
costsbeforedecidingona15percentreductionby2020.SenatorWonghasalsostated

30 Lester&Smith:CaseStudyonPreviousGovernmentDecisions | PewBenefitsWorkshop


that,theTreasurysmodelingdemonstratesthatearlyglobalactionislessexpensivethan
lateraction;thatamarketbasedapproachallowsrobusteconomicgrowthintothefuture
evenasemissionsfall;andthatmanyofAustraliasindustrieswillmaintainorimprove
theircompetitivenessastheworldmovestoreducecarbonpollution(Australia,2008a).
Whilethereviewfoundthatatargetof25percentreductionwaseconomicallyfeasible,the
risksofinternationalcompetitionhavekeptthegovernmentfrominitiallyendorsingsucha
goal.BoththegovernmentandDr.Garnauthavestatedthatthereductiontargetsshouldbe
increasedto25percentwithanewglobalagreementin2009(Taylor,2008).Iftheworld
cannotagreeonAustraliasgoals,Dr.Garnautstatedthatthecountryshouldstillaimtocut
emissionsby10percentby2020,or5percentatanabsoluteminimum(SydneyMorning
Herald,2008).

CaseStudy3:California
Overview
CaliforniahasbeenattheforefrontofclimatechangeresearchandpolicyintheUnited
States.In2007,theCaliforniaAirResourcesBoard(ARB)adoptedGHGemissionslimitsas
aresultoftheGlobalWarmingSolutionsActof2006(AB32).AB32establishesthefirst
comprehensiveprogramofregulatoryandmarketmechanismstoachievequantifiable
reductionsinGHGemissionsintheUnitedStates.Thelawsetsaneconomywidecapon
CaliforniaGHGemissionsat1990levelsbynolaterthan2020.Thisgoalrepresents
approximatelyan11percentreductionfromcurrentemissionslevelsandnearlya30
percentreductionfromprojectedbusinessasusuallevelsin2020(California,2008a).

StudiesofClimateChangeImpactsandEconomicCosts
TheEnergyCommissionsPublicInterestEnergyResearch(PIER)Programpublished
GlobalClimateChangeandCalifornia:PotentialImplicationsforEcosystems,Health,and
theEconomy,in2003(PIER,2003a).Thereportcontainsadetailedstudyonthepotential
effectofclimatechangeontheCaliforniaeconomy.Thestudyexaminespotentiallyaffected
sectorsandtheinteractionsbetweenclimatechangeandincreasedpopulation,and
economicandtechnologicalgrowth.Itconsidersawiderangeofclimatechangescenarios,
varyingamongtemperatureandprecipitation.Someeconomicimpactswereprojected,
thoughmanybelievetheseimpactswereunderestimated.Areviewofthe2003studywas
conductedanddiscussedthestrengthsandweaknessesofthePIER2003study.Thereview
recommendedthatthefindingsbeviewednotasspecificpredictions,butratherasa
sensitivityanalysisthatconsidersarangeofpotentialoutcomes(PIER,2003b).
Inaddition,apaperintheProceedingsoftheNationalAcademySciences(PNAS)released
afterthe2003PIERstudywasconsideredtobeveryinfluentialinCaliforniasdecision
makingprocess.EmissionsPathways,ClimateChange,andImpactsonCalifornia,showed
thatthelevelofimpactsgetsworsewithincreasedglobalGHGemissions.Thestudyshows
theimplicationsandassociatedimpactsinCaliforniaofthehighestandlowestIPCC

PewBenefitsWorkshop|Lester&Smith:CaseStudyonPreviousGovernmentDecisions 31


emissionspathwaysforclimatechange(Hayhoeetal.,2004).Underthehighemissions
scenario,heatwavesinLosAngelesaresixtoeighttimesmorefrequent,withheatrelated
excessmortalityincreasingfivetoseventimes.Alpineandsubalpineforestsarereducedby
7590percent.Finally,snowpackdeclines7390percent,withcascadingimpactsonrunoff
andstreamflowthat,combinedwithprojectedmodestdeclinesinwinterprecipitation,
couldfundamentallydisruptCaliforniaswaterrightssystemtimes.Whilethestudydidnot
estimateeconomicimpacts,ithasbeenusedasmotivationforclimatepoliciesthatavoid
thelargestimpactsofthehighemissionscenario(Hayhoeetal.,2004).
BuildingupontheworkofthePNASstudy,the2006impactsassessmentreport,Our
ChangingClimate:AssessingtheRiskstoCalifornia(California,2006)wasstatedto
beaprimarymotivatingfactorinthedevelopmentofCaliforniaAB32(California,
2007).Forthisreport,PIERdeveloped20technicalpapersanalyzingissuessuchas
potentialimpactsofclimatechangeonagricultureandenergyandwaterresources.These
papersincludeimpactsonforestresources,agriculture,watersupplymanagement,health
impacts,sealevelrise,andchangesinenergydemand.Theresearchservedasthebasisfor
evaluationsofCaliforniaclimatechangeimpactsatthestategovernmentstoplevels.While
theassessmentdidnotcalculateeconomicimpacts,asoontobepublished2008impact
report(California,forthcoming)willanalyzetheeconomicimpactsofclimatechange
airquality,publichealth,forestry,agriculture,andcoastalprotection.In2008,
GovernorArnoldSchwarzeneggerissuedadirectivemandatingthepreparationofbiennial
sciencereportsonthepotentialimpactsofclimatechangeonCalifornia(California,2008a).

AnalysisofMitigationPolicies
CaliforniarecentlyreleasedtheAB32ScopingPlan,whichcontainsthemainstrategies
CaliforniawillusetomitigateGHGemissions(California,2008a).TheScopingPlancontains
arangeofGHGreductionpoliciesandmeasures,whichincludedirectregulations,
alternativecompliancemechanisms,monetaryandnonmonetaryincentives,voluntary
actions,andaeconomywidecapandtradesystem.IncludedasanappendixtotheScoping
Planwasaneconomicanalysis,whichcontainsanassessmentoftheeconomicimpactsof
therecommendedmeasuresinAB32(butnotananalysisofthevalueofavoideddamages
fromclimatechange).CaliforniamodeledtheeconomiccostsofAB32andfound
benefitstotheeconomyfrommitigation,inadditiontotheavoidedcostsofclimate
impacts(California,2008b).Thisprovidedfurthermotivationforaportfolioof
mitigationpolicies.TheScopingPlanalsocontainsasectionthatdescribesthecostsand
benefitsofthemarketbasedcompliancemechanisms.

CaliforniasDecisionProcess
AsadirectresultofPIERs2006impactassessment,EileenWengerTuttoftheCalifornia
EnvironmentalProtectionAgencystated,Thequalityofresearchcontainedinthescenario
analysisperformedbyPIERfarexceededourexpectations.Thefindingsofthereport

32 Lester&Smith:CaseStudyonPreviousGovernmentDecisions | PewBenefitsWorkshop


contributedgreatlytoourunderstandingoftheeffectsofclimatechangeemissionsin
California.ThesefindingswerethebasisofthescientificevidencereflectedintheMarch
2006ClimateActionTeamreportandinAB32,theCaliforniaGlobalWarmingSolutionsAct
of2006(California,2007).Bycollectinginformationonthepotentialimpactsofclimate
change,theStateapparentlydevelopedmotivationtosetemissionsreductiongoalsthat
surpassanyotherstateinthecountry,andevensurpassmanydevelopedcountriesgoals,
despitealackofafederalpolicyonclimatechange.
PolicymakersinCaliforniaalsofoundbenefitsinthestatetakingpreemptiveaction,even
thoughclimatechangemitigationwillrequireglobalaction.Californiapolicymakersalso
actedbecausestateindustriescouldgainsignificantadvantagefromthestatesfirst
moverstatus(California,2008b).Thesebenefitsincludejobcreation,investment
opportunitiesfromoutsidesources(Californiaistheleadingrecipientofventurecapitalfor
lowcarbontechnologyintheworld),andachancetoberewardedfortakingearlyaction
whenmorecomprehensivefederalorglobalclimateagreementsaredeveloped.

Conclusions
Thisreportbrieflyexaminestherolethattheanalysisofpotentialeconomiclossesfrom
climatechangeplayedforthreegovernments:theUnitedKingdom,Australia,andtheState
ofCalifornia,inprovidingsupportforGHGemissionsreductionpolicies.Whileitappears
thatnoneofthegovernmentsundertookaformalbenefitcostanalysisusingthefuture
benefitsofavoidedclimatechangetosetitsGHGreductiontargets,itappearsthatthe
estimationofthebenefitsofavoidedimpactsmayhaveplayedaroleinjustifyingclimate
policies.However,itisalsopossiblethatthelevelsofemissionsreductionsselectedbyeach
governmentwouldhavebeenselectedevenifformaleconomicanalysisofthebenefitsof
suchreductionshadnotbeendone.
Impactsstudieshaveprovidedusefulinformationenablingallthreegovernmentstohelp
supportlongtermGHGemissionsreductiontargets.Usingintegratedassessmentmodels,
theUKgovernmentconcludedthatthedangersofglobalunabatedclimatechangewillbe
equivalenttoatleast5percentofGDPeachyear,andcouldpossiblyriseto20percentof
GDPormoreifawiderrangeofrisksandimpactsaretakenintoaccount.Incontrast,the
costsofactiontoavoidtheworstimpactscouldbelimitedtoaround1percentofglobal
GDPiftheworldpursuesoptimalpolicies(Stern,2006).TheanalysisbyStern,whichdoes
notexplicitlylookatavoideddamagesbutcomparesthecostsofinactionagainstthecostof
takingaction,wasusedasmotivationforBritainsrecentadoptionofClimateChangeAct
targets.ThegovernmentalsofoundthatthecostofmeetingtheActsproposedbudgetsis
lessthan1percentofGDPin2020(CCC,2008a).
Impactsofchangesinclimate5havealreadybeenfeltthroughouttheAustralianeconomy
andthisappearstohaveplayedakeyroleintheAustraliangovernmentadoptingGHG

5
Itisnotclearwhethersuchchangescanbeattributedtoanthropogenicclimatechange.

PewBenefitsWorkshop|Lester&Smith:CaseStudyonPreviousGovernmentDecisions 33


emissionsreductiontargets.ThegovernmentcommissionedtheGarnautreviewto
examinehowmuchmitigationisjustified.Thereviewcomparedthecostsofmitigation
withthebenefitsofclimatechangeavoidedbymitigationusingintegratedassessment
models.ThereviewfoundthattheoverallcosttotheAustralianeconomyoftackling
climatechangewouldbeintheorderof0.10.2percentofannualeconomicgrowthto
2020.ThereviewestimatedthatglobalGNPwoulddeclinearound8percentby2100from
climateimpacts,withlossesindevelopingcountrieslikelytobehigherthantheglobal
average(Garnaut,2008).
InCaliforniascase,policymakersacknowledgedthatpreviousimpactsassessmentswerea
keymotivationintopassinglegislationonanambitiousemissionsreductiontarget.Yet,
theseimpactsassessmentsfocusedonphysicalandbiologicalimpactssuchaslossof
snowpackandincreaseindeathsfromexcessheat.Thenextimpactsassessmentwill
providegreatereconomicdetailsoneconomicdamagesfrombusinessasusualemissions
onasectorbysectorbasis.
Thethreegovernmentsstudiedinthisreportareallleadersinpledgingtosubstantially
reducefutureGHGemissions.Eachofthemhavealsobeenleadersinassessingtheimpacts
ofclimatechange.Two,theUKandAustralia,haveestimatedthetotalvalueofeconomic
lossesfromclimatechange.Thethird,California,hasconductedextensiveanalysisof
climatechangeimpacts.TheUKandAustraliaconcludedthatsubstantialreductionsinGHG
emissionswouldcostlessthantheimpactsofclimatechange,whileCaliforniadidnotmake
suchacalculus.Inspiteofthis,itdoesnotappearthatemissionsreductiontargetswere
basedonaformalapplicationofbenefitcostanalysis.Forexample,noneofthe
governmentscalculatedeconomicallyoptimalemissionsreductions,e.g.,wherethe
marginalbenefitofemissionsreductionsisequaltothemarginalcost.Instead,itappears
thatthecalculationofeconomiclossesfromclimatechange(orinthecaseofCalifornia
descriptionofprojectedimpacts)wasusefultoandinformedthepolicyprocess.The
settingoftargetswasapparentlybasedonanumberofconsiderations,suchascost
effectivenessandcompetitiveness,notjustavoidedeconomicimpacts.

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