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Abstract as it may be, economic modeling is likely to become a hot topic in the upcoming debate on the Climate Security Act. Already, countering claims are flying: critics from the industry and fossil fuel camp claim the bill will crush consumers with new costs while advocates from the cleantech space and green groups are saying carbon caps can be applied with modest if any cost to the economy.
Behind these arguments are a half dozen computer that mimic the overall economy, letting researchers plug in different costs for carbon, over different timelines. Understanding how these models work – what they do and don’t do – is important to anyone entering this debate. And earlier this week, the Pew Center on Global Climate Change released a helpful study looking at how these models work, what they cover and what they omit.
Here are the six leading models that Pew dug into:
• Energy Information Administration
• Clean Air Task Force
• American Council for Capital Formation/ National Association of Manufacturers
• Massachusetts Institute of Technology
• Environmental Protection Agency
• CRA International
And here are details on some of their findings, along with links to deeper details:
Key insights drawn from these modeling analyses and outlined in the Pew Center brief include the following:
• Availability of advanced, low-carbon technology is crucial to minimizing the costs of achieving greenhouse gas reductions;
• Flexibility in the timing of greenhouse gas reductions and allowing banking and borrowing of emission allowances lowers costs;
• The more offsets available, the lower the costs;
• Energy efficiency provisions reduce costs; and
• Robust economic growth is still achieved with climate policies in place.
While the models offer valuable insights, they do not tell the complete story. They reveal long-term assumptions are at best only approximations. For example, accurately predicting the availability and cost of technologies 50 years in the future is nearly impossible. The models do not fully represent the Lieberman-Warner bill, often omitting potential cost-savings provisions including certain energy efficiency inducements and the Carbon Market Efficiency Board’s role in regulating allowances. The models also fail to consider the costs of inaction, and any credible analysis finds that unabated climate change will cost far more than reasonable climate policy.
As a companion to this study, a recent Pew Center paper describes the advantages and limitations of economic models for evaluating policy options. “Insights Not Numbers: The Appropriate Use of Economic Models explains that economic modeling cannot predict future events or produce precise projections of the consequences of specific policies. Instead, model results are more appropriately used to provide insights into key economic relationships, to explore the impact of alternative policy designs, and to produce ranges of results based on plausible assumptions and reliable data. A copy of the new economic modeling study can be found at www.pewclimate.org/in-brief/l-w-modeling.