Lies and Economic Models

Amory Lovins and other green techno-optimists have long argued that there are numerous technologies and policies that could reduce energy use and emissions at a net profitthe so-called no regrets policies that would save more money than they cost to implement. Conservative economists, many of them employed or supported by the Department of Energy, have argued that this simply cant be true, since energy marketslike all marketsare optimal. (This is the famous twenty dollar bill argument; i.e., there cant be twenty-dollar bills lying on the ground, because people would have already picked them up).

Many economists, of course, see the bills everywhere. 2500 economists including eight Nobel laureates signed the Economists Statement on Climate Change in 1997, which declares Economic studies have found that there are many potential policies to reduce greenhouse-gas emissions for which the total benefits outweigh the total costs.

Two new studies argue strongly for the existence of substantial no regrets opportunities. The new report Scenarios for a Clean Energy Future by the Inter-laboratory Working Group of the DOEs National Laboratories predicts that policies to remove market barriers, combined with a national $50/ton carbon charge, would get the U.S. most of the way to its Kyoto target with no net costs. Clean Energy Future (CEF) was finished early in 2000, but inside sources say that the DOE suppressed its publication until after last years election, fearing that it would undercut the U.S. negotiating position and embarrass President Clinton and wannabe-President Gore.

A new report issued this May by the International Project for Sustainable Energy Paths builds on CEF, and at the same time provides a comprehensive review of the methods of the major U.S. modeling groups. By integrating CEFs bottom-up approach with well-known top-down models from the Stanford Energy Modeling Forum (EMF), and by further examining tax-shift policies which could produce a so-called double dividend, the IPSEP report robustly predicts that Kyoto can be met with a net increase in economic output of the order of $50 billion per year. Furthermore, this can be done without depending extensively on international emissions trading. In fact, the more the U.S. tries to finesse its commitments by relying on Kyotos flexibility mechanisms, the more money itll be throwing away. The IPSEP report shows exactly why modeling studies such as the DOE report cited by Bush II in his infamous letter produce high costs for Kyoto compliance because of their assumptions, and the cost-effective policies which they knowingly ignore.

Why are we reporting this Aside from the fact that EcoEquitys Paul Baer is a co-author of the above-mentioned IPSEP report, Bushs anti-Kyoto policies create an intimate de facto link between the overestimate of costs and the issue of international equity. Those who dont believe that Kyoto is unfair may still think its too costly; those who think its not costly to make reductions may still think its unfair that other countries dont have to act. Until both of these diversionary claims are effectively laid to rest, it will be difficult for many Americans to see just how outrageous Bushs actions are.

— Paul Baer (June 2001)