Abby L. Harvey
GHG Monitor
9/26/2014
The United States must act now to combat climate change without putting the nation’s future fiscal security at risk and businesses across the country are ready, Secretary of the Treasury Jack Lew and Environmental Protection Agency Administrator Gina McCarthy said at two events held this week. “As an economic matter, the cost of inaction or delay is far greater than the cost of action. Costs associated with extreme weather events like rising sea levels, drought, heat waves, wildfires, floods, and severe storms demonstrate the scope of economic exposure. The Council of Economic Advisors estimates that if warming above preindustrial levels increases to 3 degrees Celsius instead of 2, there could be a 1 percent decrease in global output annually,” Lew said at an event hosted early this week by the Brookings Institute’s Hamilton Project. This inaction, Lew said, will cause harm to many sectors of the nation’s economy including agricultural productivity, transportation infrastructure, power grids and health care.
Lew went on to note that the cost of dealing with the aftermath of climate change-related events is a rarely discussed, but pressing, issue. “Much less has been said about the impact of climate change on our nation’s fiscal situation. When the federal government has to step in and do things like provide disaster relief, crop insurance, protection from wildfires, health care, taxpayers pay the cost,” Lew said. “If the fiscal burden from climate change continues to rise, it will create budgetary pressures that will force hard tradeoffs, larger deficits, or higher taxes. And these tradeoffs would make it more challenging to invest in growth, meet the needs of an aging population, and provide for our national defense.” Further, Lew noted, the cost of combating climate change will increase with time. “If we fail to make changes now, it will be much more costly to deal with the problem later and some options may be foreclosed entirely,” he said.
Businesses Ready to Take Action, EPA Head Says
Speaking at a Resources for the Future event later in the week, McCarthy echoed those sentiments while also stating that businesses from all sectors are ready to take action to combat climate change and do not see climate action as a threat the nation’s economy, but an opportunity. “As seas rise, so do insurance premiums, medical bills, and food prices. From water scarcity to wilting crops, companies like General Mills and Coca-Cola see climate change as an absolute ‘threat to commerce,’” she said. “Paying more for soda and cereal means less cash to buy other things and that chokes economies and that is what stunts job growth. The bottom line is: We don’t act despite the economy, we act because of the economy.”
McCarthy also cited a study published last week by the Carbon Disclosure Project, which found that major companies use an internal carbon price in their business decisions already. ”If they get it, everyone has to get it as well. Why? Because investors and CEOs are seeing the cost of climate change, and the value of taking action. That’s what we need to focus on,” she said.
Progress Has Been Made, but More Must Be Done
McCarthy lauded individual states and cities for taking steps outside of federal action, noting that they have reaped the benefits of early action demonstrating that combating climate change can be done in tandem with growing the economy. “For years, states in the Northeast have teamed up in a market-based program to curb greenhouse gases. At the same time, those states have enjoyed some of the nation’s strongest economic growth. My home state of Massachusetts … cut emissions by 40 percent, while their economy grew by 7 percent. Cities and states acting on climate are not slowing down, they’re speeding up,” she said, going on the mention the federal action is on the horizon with EPA’s recently proposed carbon emissions standards for new and existing coal-fired power plants.
The steps that the Obama Administration has taken to combat climate change are helpful, but without further action it won’t be enough in the long run, Lew said, suggesting the legislative action must also be taken. What the Administration has done is “sufficient to keep us on track towards meeting the commitments we’ve made in the international negotiations on climate policy,” Lew said. “We’ll have to do more to get to the next level. So it certainly accomplishes a great deal. I don’t think we can stop where we are. We’re going to have to keep putting more policies into place, but it builds a foundation.”
Lew went on to say, “This is not a problem that we’re going to solve in one action, and I think what we have to do is take the steps that we can that are clear and concrete. And if we were able to have a debate on the broader policy that would require legislation, I think we could do more. But using the administrative authority we have, meeting the international commitments we’ve made, I think is a pretty substantial accomplishment.”
Economic Consensus on Carbon Price
While progress that has been made in the U.S. is a step in the right direction, a carbon price would be more effective, according to Lew and Michael Greenstone, the Milton Friedman Professor in Economics and Director of the Energy Policy Institute at Chicago at the University of Chicago who joined Lew at the Brookings Institute event. While it is generally accepted that there is a scientific consensus concerning the facts related to climate change, Greenstone said, a consensus also exists among economists regarding how to address the problem. “There’s a clear consensus about what to do and that is when you are engaged in an activity that is harming other people, that activity should be pricey,” Greenstone said.
Lew noted that such a system had been attempted in the United States, but was not ultimately supported by Congress. “It would be a very good discussion to get back into with Congress on how to have market forces work to help shape this to a better solution,” Lew said. “What I think we can’t do is wait until Congress acts to take the steps that we can because what we’re doing, while it’s incremental, is very significant in terms of changing what U.S. emissions will be over the next decades.” Lew added, “Congressional action based on market-based approaches is the most efficient way to reduce emissions and transition to a cleaner economy.”
Action Must Also be Taken Abroad
Lew also stressed that the United States cannot combat climate change on its own, noting that greenhouse gas emissions in China and India are substantial. However, the United States is in a position to lead these countries to more environmentally friendly practices, he said. “I think we have to lead by taking action where we take burdens on ourselves and certainly our power plant rules reflect an important step in that direction. So I think there’s not going to be a one-size-fits-all answer to how we deal with every country internationally, but there’s no doubt that the fastest growing largest economies are going to be a very significant factor in addressing global emissions because that’s where the emissions of the future will be coming from,” Lew said.
A large challenge present in addressing greenhouse gas emissions in countries like China and India is that parts of those countries are not as developed at the United States. However, Lew suggested, this presents those countries with a unique opportunity in building their energy infrastructures. “They are correct that they are at a different stage of development than we’re at and they need to add more generating capacity, but that also creates an opportunity for them that we didn’t have when we were at a similar point of development,” Lew said. “We didn’t have the renewable options when the United States was building its first generation of power plants. We have to go back and deal with a lot of existing facilities. If going forward we all deal with the challenge of putting new generating capacity in place that meets high standards, that would be a big help.”
Indian Emissions May be Tougher to Tackle than China’s
Dealing with India’s growing emissions may be more difficult that addressing China’s very high emissions, Lew said, because in China there is an internal push to lower emissions due to public health concerns. “I do think they’re a bit farther behind,” Lew said of India. “I don’t think it’s as much of a domestic issue in India as it is in China, but I think it’s only a matter of time. And to wait until you can’t breathe in India in cities is probably waiting too long. So it’s a question of working on rules that don’t interfere with the ability of a country like India to grow, and part of that is going to come down to how do you finance the investments in the future,” he said.
Lew added, “To the extent that we have technology that’s available to meet the electricity needs of a growing economy at an affordable cost, it will help a lot. They’re not going to be able to not have more electricity, just like China’s not going to be able to avoid growth in electricity. So the challenge is going to be to meet that load with new technologies and that’s where I think we can work together, but I think it helps when there’s a domestic pressure for it. I see more of that in China than I do in India right now.”
