OECD - US Economic Report

Nothing like curling up with a report from the Organisation for Economic Co-operation and Development (OECD) to ease any insomnia you might suffer from. To be fair the report is actually a great resource for US facts/figures, though I'm not sure about its claim that the US is accountable for only 15% of global emissions. This is far lower than the ~20% figure I've seen in the past (and ~22% for China). You can read the summary here.

A few highlights:

* The climate section of the report is framed in the context of reducing Americans' exposure to risk. It also identifies the corollary benefits of taking action - cleaner air, improved health conditions, enhanced energy/national security due to a reduction in foreign oil imports

* The report makes a very strong case for putting a price on carbon - least cost option, driver of RD&D, etc., and argues that the EPA is a less cost effective tool and unlikely to deliver the necessary emissions reductions

* It calls for passage of US climate legislation but: i) opposes the removal of provisions which do not take the indirect land use effect of bio-fuels into account (i.e., food shortages, increased prices, etc.); ii) opposes the inclusion of BTAs (border tax adjustments), also known as BAMs (Border Adjustment Mechanisms) in US parlance; and iii) suggests limiting offsets so revenues raised can be used as a deficit reduction tool.

I'm not sure what impact the report will have on the US debate, if any. But it's interesting to note that an organization set up to counterbalance OPEC is calling on the US to reduce its emissions and put a greater emphasis on investment in low carbon technology.

So what happens if we don't do anything?

The debate around climate change and clean energy has focused largely on the cost of taking action. The Environmental Protection Agency (EPA) recently released its analysis of a bill introduced by Sens. Kerry (D-MA) and Lieberman (I-CT). It found the cost to average consumers to be fairly negligible. But as the Economist points out, the analysis misses a critical element - the cost of inaction.

More and more we are seeing the real time impacts of climate change. Companies are already being encouraged to adopt relevant adaptation policies they will need in order to cope with an unpredictable and shifting climate in the coming decades. It's absolutely critical that while we debate various policy options moving forward we never lose sight of the fact that the cost of inaction will far outweigh the cost of action.

As many of you will know I'm a big fan of placing a price on carbon. Right now we get to emit greenhouse gases (GHGs) for free when we know their effect on the environment comes with a cost. Ezra Klein recently posted an excellent piece which focused on pricing externalities. In this case it was specific to oil but you only need to replace that term with CO2 or GHGs and you've got a strong argument for taking into account the full cost of carbon.

Without doing something now, we place ourselves at much greater risk to weather extremes. We're already committed to a certain amount of exposure, but why push the envelope further?