Wednesday, September 20, 2006

CBO Report Examines Two Methods Of Limiting CO2 Emissions

Sep 19: The Congressional Budget Office (CBO) issued a report entitled, Evaluating the Role of Prices and R&D in Reducing Carbon Dioxide Emissions. According to the report, atmospheric concentration of greenhouse gases, most notably carbon dioxide, has gradually increased over the last century and, in the view of many climate scientists, is warming the global climate. Two policies -- pricing carbon dioxide emissions and encouraging research and development of new carbon-reducing technologies -- have been discussed as methods of limiting current and future emissions. The CBO paper examines available research on the role that those policies might play in encouraging cost-effective reductions in emissions as well as analyses on whether it would be more efficient to implement the policies simultaneously or sequentially. The paper was prepared in response to a request from Senators Jeff Bingaman (D-NM) and James Jeffords (I-VT), the Ranking Members of the Senate Committee on Energy and Natural Resources and the Senate Committee on the Environment and Public Works, respectively.

The report indicates that an efficient response by policy makers is likely to involve two separate types of policies: One type of policy would reduce carbon emissions by increasing the costs of emitting carbon, both in the near term and in the future, to reflect the damages that those emissions are expected to cause. The other type of policy would increase Federal support for R&D on various technologies that could help restrain the growth of carbon emissions and would create spillover benefits.

The report concludes, "Pricing and R&D policies are neither mutually exclusive nor entirely independent -- both could be implemented simultaneously, and each would tend to enhance the other. Pricing policies would tend to encourage the use of existing carbon-reducing technologies as well as provide incentives for firms to develop new ones; federal funding of R&D would augment private efforts; and successful R&D investments would reduce the price required to achieve a given level of reductions in emissions. Neither policy alone is likely to be as effective as a strategy involving both policies..."

Senator Jeffords issued a release on the report saying, "One frequent criticism of mandatory policies to reduce greenhouse gas emissions has been that putting a market price on emissions would be too costly to the U.S. economy. Critics of mandatory greenhouse gas measures have argued that it would be just as effective, and cheaper, to rely simply on the development and voluntary adoption of new technologies. CBO’s economic analysis, contained in the report, has demonstrated the opposite. It found that the way to reduce greenhouse gas emissions in the most cost-effective manner would be to combine a price for emissions with R&D funding. The combination strategy would balance the expected costs and benefits of both policies and achieve results that would not be obtained by either policy in isolation..."

Access the complete report (click here). Access the release from Senator Jeffords (click here) [*Climate]

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