Global Warming

Cost Effectively Reducing Greenhouse Gas Emissions

There is a misconception that curbing emissions of greenhouse gases (GHGs) that cause global warming must come at the expense of the economy. This is simply not the case. In California, the U.S., and the rest of the world, there are many cost-effective ways to limit emissions of GHGs. Many of these strategies end up saving individuals money, stimulating the economy and creating jobs.

A number of prominent studies conclude that there are many GHG reduction measures that can be implemented at relatively low cost or that save money:

In 2007, McKinsey & Company, a leading consulting firm, published a breakthrough report estimating the cost of reducing GHG emissions in the U.S. It found that almost 1/3 of projected GHG emissions in 2030 could be avoided using various strategies, the most expensive costing no more than $50 per ton of avoided CO₂ equivalent (CO₂e).1 Cumulatively, the report estimated that realizing these strategies would require only 1.5% of the real investment expected in the U.S. economy from 2009 to 2030. This cost effective reduction is possible because 40% of the avoided emissions would result in negative cost -- meaning that overall they do not cost money, but end up saving money. These savings, in turn, can be used to pay for other emissions reduction strategies. For example:

Substituting inefficient traditional lighting with more advanced technologies, such as Compact Fluorescent Lights (CFLs) and Low Emitting Diodes (LEDs), in homes and businesses can save up to $20.8 trillion.

Increasing the efficiency of electronic equipment, such as personal computers, office equipment and home entertainment systems, can save up to $11.6 trillion.

Improving building efficiency for new and retro-fitted buildings, for example by improving insulation, reducing the loss of heated or cooled air from walls, doors and windows and adding reflective roof coatings, can save up to $2.5 trillion.

"Reducing Greenhouse Gas Emissions: How Much at What Cost?" © 2007 McKinsey & Company View larger Graph.

[This figure shows the opportunities for reducing 1/3 of the estimated CO₂e emissions in 2030 from least expensive on the left, to more expensive on the right. All of the strategies falling below the line are negative cost -- meaning they save money -- and those above the the line are each less than $50/ton of CO₂e avoided. The wider the bar representing each strategy, the greater the amount of CO₂e that is possible to avoid.]

A 2008 McKinsey report reached similar conclusions about global emissions, finding that abatement to stabilize atmospheric concentrations of CO₂e between 450 parts per million (ppm) and 500 ppm by 2030 -- the level scientists believe necessary to avoid dangerous climate disruption -- is feasible using technologies that are available now, and would be achievable for under 40 euro 2 /ton avoided CO₂e. Moreover, 25% of this abatement is achievable at negative marginal cost, meaning that investing in these options would save money over time.3

Likewise, a 2009 report by the Gigaton Throwdown Initiative -- a research group composed of members of the cleantech business community and leading academics -- found that abatement necessary to reach 450 ppm is possible and much of it is cost-effective. The report analyzed the possibility of scaling 9 different clean energy technologies to each abate one billion tons (a "gigaton") of CO₂e emissions annually by 2020 (compared to estimated global emissions of 28 gigatons/year in 2005). It found that 8 of the 9 approaches could feasibly achieve one gigaton abatement if supported by appropriate government policies and investment, and that 7 of 9 are ready to be aggressively scaled-up now. Scaling-up of the 8 feasible technologies would be cost-effective, requiring worldwide investment of $500-800 billion annually -- an amount in line with current fossil fuel investments.4

The same conclusions were reached by the Stern Review, the most comprehensive study to date on the economics of climate change. It found that the costs of implementing measures to combat increases in GHGs can be limited to about 1% of Global Domestic Product (GDP) each year until 2050. This cost could be even lower if there are major gains in energy efficiency or if the co-benefits (e.g. reduced air pollution, increased health benefits, etc.) of various mitigation options are measured. By contrast, if we remain on a business-as-usual trajectory, the overall costs and risks of climate change will be equivalent to losing 5% of global GDP each year, and this value could increase to 20% or more.5

Efficiency

Increasing energy efficiency is the most cost effective strategy for combating global warming. This is because there are many opportunities to reduce electricity use that result in decreased emissions from not having to produce the electricity saved and, at the same time, result in cost savings for the public.

California is an excellent illustration of the environmental and economic gains from strong efficiency measures. As a result of California's policies, over the last 35 years, while the rest of the country increased its per capita electricity use by 50%, California's per capita use has remained virtually flat, while the state's economy has grown by 80% 6 (as illustrated in the chart below). These efficiency standards have saved California more than $56 billion in electricity and natural gas costs since 1978, equivalent to more than $1,000 per household and increased Gross State Product by 3%, or $31 billion.7 Moreover, the state has avoided the construction of 24 additional power plants.8

"Energy Efficiency: The First and Most Profitable Way to Delay Climate Change," Art Rosenfeld View larger Graph

Nationally, if all new and resold buildings in the U.S. required current best efficiency practices -- those where the extra cost of efficiency practices is recouped within 3-5 years through reduced energy costs -- we could increase efficiency by 30-40%, save an estimated one gigaton of emissions of CO₂e by 2020, and also save an estimated $2.5 trillion in energy costs from 2010 to 2020.4

Worldwide, the 2008 McKinsey report found opportunities to eliminate 4.7 gigatons of CO₂e emissions through energy efficiency improvements. It estimated that realizing these opportunities would require $170 billion annual investment between 2008 and 2020 -- an amount equivalent to only 1.6% of global fixed-capital investment in 2008 -- but would would result in $900 billion annual savings by 2020. This would be a 17% gain from the investment.

The Economic Impacts of AB 32

GHG reductions can be accomplished cost-effectively in California. An economic analysis by the California Air Resources Board (CARB) in 2008 found that implementing the economy-wide reductions called for by California's AB 32 will result in a net positive effect on California's economic growth through 2020.9 An updated analysis by CARB in March 2010 reached very similar results. It found that the overall rate of California's economic growth between now and 2020 will be virtually unchanged with implementation of AB 32, and that Gross State Product and state income would also be unchanged. The analysis also found that AB 32 is unlikely to harm small businesses.

In 2009, Sanjay Varshney and Dennis Tootelian of Sacramento State University released a report claiming that implementing AB 32 would result in significant economic losses.10 They released a subsequent report claiming that California's regulations more generally impose significant costs on the state's economy.11

The Attorney General's Office asked leading climate economist Frank Ackerman of Tufts University and the Stockholm Environmental Institute to review the reports. Professor Ackerman's review concludes that the studies are unsound and unreliable economic analyses. The report on AB 32's impacts is one-sided, counting only the costs of AB 32's energy efficiency, conservation, and clean energy measures, and none of the savings, and is based on double counting of small business receipts and arbitrary assumptions about the costs small businesses face. The later report about the impacts of state regulation attempts to explain all of the variation in economic output among states based on rankings of state business climates, without taking into account the obvious fact that bigger states with larger populations have bigger economies. When done properly, the analysis shows that the regulatory climate of California and other states has no impact on state's per capita economic output. Read the review. PDF logo [PDF 126 kb / 16 pg]

In March, 2010, the California Legislative Analyst released a report on the two studies prepared by Varshney and Tootelian. The Analyst concluded that the reports were "essentially useless" and "highly unreliable." Read the Legislative Analyst report. PDF logo [PDF 64 kb / 7 pg]

Global Warming Solutions and Job Creation

Not only are there many cost effective strategies for reducing emissions of GHGs, investment in these strategies stimulate the economy and create jobs. Energy efficiency is particularly effective at stimulating the economy because the money saved on carbon-based energy is usually spent on household goods and services that are much more labor intensive than developing fossil fuels. For example, when a dollar is spent on groceries, it supports a whole supply chain of labor intensive sectors, such as retailers, wholesalers, food processors, transport, and farming. Likewise, developing renewable energy generates 2-3 times as many new jobs as it displaces in traditional carbon fuel supply chains.12

A 2008 study conducted for the U.S. Conference of Mayors, for example, concluded that a transition to a green economy -- including retrofitting existing buildings, investing in renewable power generation and increasing the use of alternative transportation fuels -- would produce a total of 4.2 million new jobs.13 An analysis by the Political Economy Research Institute similarly found that 2 million jobs nationwide would be created by investing $100 billion in six energy efficiency and renewable energy strategies. It further predicted that an investment of $13 billion in California would create over 235,000 new jobs and a reduction of the state's unemployment rate by 1.3%.14 The Gigaton Throwdown estimates that clean energy technologies could add 5 million direct jobs, and many more indirect jobs, globally if policies are put in place to significantly scale-up clean energy production.

California Job Creation From Efficiency and Renewable Energy

A 2008 University of California Berkeley study examined the economic impact of energy efficiency measures in California from 1972-2006 and found that these measures created 1.5 million jobs with a total payroll of $45 billion. The study also predicted that implementing AB 32 will increase the Gross State Product of California by about $76 billion, increase real household homes by up to $48 billion and create as many as 403,000 new efficiency and climate action driven jobs.8 A later UC Berkeley study found that an aggressive combination of renewable energy and increases in energy efficiency in California would result in 500,000 new jobs with cumulative payrolls of $100 billion over 40 years.12

McKinsey & Company, Reducing U.S. Greenhouse Gas Emissions: How Much at What Cost? (December 2007).

This would translate into $56 based on an exchange rate of 1.4 Euro/U.S. dollar.

McKinsey & Company, The Carbon Productivity Challenge: Curbing Climate Change and Sustaining Economic Growth (June 2008).

Gigaton Throwdown Initiative, Redefining What's Possible for Clean Energy by 2020 (June 2009).

Stern Review, The Economics of Climate Change, Executive Summary (October 2006).

Art Rosenfeld, California Energy Commission, Energy Efficiency: The First and Most Profitable Way to Delay Climate Change (May 2008).

California Energy Commission, 2007 Integrated Energy Policy Report (2007).

David Roland-Holst, Center for Energy, Resources, and Economic Sustainability (CERES), University of California Berkeley, Energy Efficiency, Innovation, and Job Creation in California (October 2008).

California Air Resources Board, Climate Change Scoping Plan (December 2008).

Sanjay B. Varshney & Dennis H. Tootelian, California State University, Sacramento, Cost of AB 32 on California Small Businesses -- Summary Report of Findings (June 2009).

Sanjay B. Varshney & Dennis H. Tootelian, California State University, Sacramento, Costs of State Regulations on California Small Businesses Study (September 2009).

David Roland-Holst & Fredrich Kahrl, CERES, UC Berkeley, Energy Pathways for the California Economy (June 2009).

United States Conference of Mayors, U.S. Metro Economies: Current and Potential Green Jobs in the U.S. Economy (October 2008).

Political Economy Research Institute (PERI), University of Massachusetts-Amherst & the Center for American Progress, Green Recovery: A Program to Create Good Jobs and Start Building a Low-Carbon Economy (September 2008).