2007 CBO Director's Conference On Climate Change

Nov 16: The Congressional Budget Office (CBO) Director Peter Orszag hosted the 2007 Director's Conference on Climate Change in Washington, DC. The conference is held each year to bring outside experts together with CBO analysts in a collaborative effort that helps further the agency's research agenda. This year's conference featured leading researchers addressing key questions in the debate on climate change. In opening the Conference, Director Orszag delivered a 17-page statement entitled, Issues In Climate Change, to the Conference. The document provides an excellent summary of the policy debate that is now beginning to crystallize in legislation currently being considered in Congress and which will be intently scrutinized next month (December 3-14) in Bali, Indonesia when 180 countries meet at the 13th Conference of the Parties (COP13) of the United Nations Framework Convention on Climate Change (UNFCCC).

Orszag indicates, global climate change is one of the nation’s most significant long-term policy challenges. Human activities are producing increasingly large quantities of greenhouse gases, particularly carbon dioxide (CO2). The accumulation of those gases in the atmosphere is expected to have potentially serious and costly effects on regional climates throughout the world. The magnitude of such damage remains highly uncertain. But there is growing recognition that some degree of risk exists for the damage to be large and perhaps even catastrophic.

Reducing greenhouse-gas emissions would be beneficial in limiting the degree of damage associated with climate change. However, decreasing those emissions would also impose costs on the economy -- in the case of CO2, because much economic activity is based on fossil fuels, which release carbon in the form of carbon dioxide when they are burned. Most analyses suggest that a carefully designed program to begin lowering CO2 emissions would produce greater benefits than costs.

Employing incentive-based policies to reduce CO2 emissions would be much more cost-effective than using more-restrictive command-and-control approaches (such as imposing technology standards on electricity generators). Incentive-based policies use the power of markets to identify the least costly sources of emission reductions. Thus, they can better reflect technological advances, differences between industries or companies in their ability to make low-cost emission reductions, and changes in market conditions. Policymakers can choose between two general forms of incentive-based policies -- those that limit the overall level of emissions (so-called quantity instruments) or those that reduce emissions by raising their price (so-called price instruments). The simplest price-based mechanism would be a tax on emissions. The simplest quantity-based mechanism would be a cap-and-trade program.

Designing policies to address climate change is complicated by uncertainty about the damage that might result from unchecked emissions and uncertainty about the cost of reducing those emissions. A pragmatic climate policy will probably involve a sequence of decisions based on the gradual accumulation of information and the resolution of uncertainties. For such an approach, policies that can be easily modified over time would offer advantages. A flexible approach to dealing with climate change could include three different policy strategies: Researching the problem and developing technologies to address it; Adapting to a warmer climate, and; Reducing greenhouse-gas emissions. In addition, a comprehensive climate policy would inevitably involve coordinating U.S. policies with those of other countries that are major emitters of greenhouse gases.

Other presentations at the Conference included CBO representatives discussing both micro and macro economics; researchers from Stanford, Northeastern, Tufts, and MIT universities; Resources for the Future; U.S. EPA and the DOE Energy Information Administration.

Access the CBO Director's statement and links to all other presentations at the Conference (click here). [*Climate]