Environmental Valuation & Cost-Benefit News

Link: http://www.nextten.org/pdf/report_CCRR/California_Climate_Risk_and_Response.pdf

Executive Summary:
At this moment in history a financial crisis of global proportions is unfolding. The
impacts of this disaster will be felt for years to come, and its cost borne by future
generations. A universal lesson also comes from this crisis: Markets can deliver profits,
but they may not deliver sustainability. For this reason, the public interest must be
secured at all times by policy foresight and responsible leadership.

The serial market failures sparked by the collapse of the housing industry and credit
markets have profound consequences for California’s budget. Given the current fiscal
uncertainty, it is reasonable to challenge government priorities, assessing the long-term
economic and social performance of every dollar of government spending and every
regulation. Chief among the state’s priorities is Governor Schwarzenegger’s Executive
Order #S-3-05 (Schwarzenegger 2005) which calls for a 30 percent reduction below
business-as-usual of greenhouse gas emissions by 2020 and 80 percent below 1990
levels by 2050. The Global Warming Solutions Act (AB 32), which was signed into law
September 2006 and mandates a first-in-the-nation limit on emissions that cause global
warming, requires that the California Air Resources Board (CARB) put an
implementation plan (Scoping Plan) in place by January 2009. This December, CARB
will vote on this policy roadmap to meet the emissions reduction target of 169 Million
Metric Tons of Carbon (MMTCO2) equivalent by 2020 to stabilize at 427 MMTCO2
overall. This policy is a hallmark example of the proactive initiatives needed to sustain
California’s prosperity, overcoming short-term challenges to put the state on a long-term
path of lower carbon emissions and higher economic growth.

Multiple studies have been conducted assessing the economic impacts of CARB’s
Scoping Plan. CARB’s own economic analysis using the Environmental Dynamic
Revenue Assessment (E-DRAM) model projects that the state’s proposed package of
policies will increase overall personal income by $14 billion, overall gross state product
by $4 billion and result in the creation of 100,000 additional jobs. Using the Berkeley
Energy and Resources (BEAR) Model, we find that if California improves energy
efficiency by just 1 percent per year, proposed state climate policies will increase the
Gross State Product (GSP) by approximately $76 billion, increase real household
incomes by up to $48 billion and create as many as 403,000 new jobs. To document
the economic potential of energy efficiency, we examined historical data and found that
over the past thirty-five years, innovative energy efficiency policies created 1.5 million
additional fulltime jobs with a total payroll of over $45 billion.

While multiple studies have been conducted assessing the economic impacts of
CARB’s Scoping Plan, to date, there has been limited economic analysis of California’s
climate risk – the impact of climate change if the state continues business-as-usual – or
of the adaptation needed to cope with unavoidable climate change.

This report provides for the first time a comprehensive examination of the economic
impacts of climate change and adaptation in California. In conducting this multi-sector
assessment, we compile the most recent available science on climate damage, assess
its economic implications, and examine alternative strategies for adaptation.

Core Findings
From the most general perspective, our review of the evidence on climate risk and
response supports four overarching findings:
• Our estimates indicate that climate risk – damages if no action is taken – would
include tens of billions per year in direct costs, even higher indirect costs, and
expose trillions of dollars of assets to collateral risk.
• Climate response – mitigation to prevent the worst impacts and adaptation to
climate change that is unavoidable – on the other hand, can be executed for a
fraction of these net costs by strategic deployment of existing resources for
infrastructure renewal/replacement and significant private investments that would
enhance both employment and productivity.
• At the sector level, there will be some very significant adjustment challenges,
requiring as much foresight and policy discipline as the state can mobilize. In this
context, the political challenges may be much greater than the economic ones.
The state’s adaptation capacity depends upon flexibility, but divergence between
public and private interests may limit this flexibility. As in the current financial
dilemma, resolving this will require determined leadership.
• Despite the extent and high quality of existing climate research reviewed in this
document, the degree of uncertainty regarding many important adjustment
challenges remains very high. This uncertainly is costly, increasing the risk of
both public and private mistakes and the deferral of necessary adaptation
decisions. The process of improving research and understanding of climate
effects may itself be costly and difficult, but policymakers must have better
visibility regarding climate risk and response options.

Like most natural disasters, the detailed processes of climate change and ensuing
damages are difficult to predict. For this reason, adaptation investments like levies are
built against 100 or even 300 year inundation risks rather than targeting for the next
decade. All such events present a trend, cycles, and random variation. Sea level has a
strong trend, but tidal cycles and random storms are less predictable. Temperature also
has a strong trend, but fires are seasonal and subject to random outbreaks. From a
strategic perspective, adaptation decisions should be informed by trends and decisions
regarding sequencing of investments. This study discusses trends over several decades
and even to the end of the century. Strategic responses will depend on more detailed
analysis of the adaptation in question. For example, bridges and overpasses have
useful lives of 50-100 years, so climate adaptation based on the best available science
should be incorporated in this kind of planning immediately. Other adaptation decisions
must be deferred until we better understand the scope of risk, like seawater intrusion
into farmland or drought tolerance. Decisions like insurance for coastal real estate lie
somewhere in between, and in any case should be significantly guided by private
market information and participation. What is most needed right now is capacity at the
state and local level for better assessment and incorporation of this information into
strategic planning.

Seven strategic sectors are focal points for “California Climate Risk and Response”.

by Fredrich Kahrl and David Roland-Holst
University of California Berkeley, Department of Agricultural and Resource Economics
http://are.berkeley.edu/~dwrh/CERES_Web/index.html
Research Paper No. 08102801; November 13, 2008
Research Papers on Energy, Resources, and Economic Sustainability
This report is part of a series of research studies into alternative energy and resource
pathways for the global economy. In addition to disseminating original research
findings, these studies are intended to contribute to policy dialog and public awareness
about environment-economy linkages and sustainable growth. All opinions expressed
here are those of the authors and should not be attributed to their affiliated institutions.
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