The economics of carbon sequestration

Posted by: Michael Mandel on July 21

I’m going to be thinking more about the economics of climate change and the environment going forward. In that vein, I just saw an interesting post from Rob Stavins of the Kennedy School, summarizing the economics of carbon sequestration—that is, using forests as “biological scrubbers by removing (sequestering) CO2 from the atmosphere.”

The question is whether carbon sequestration makes economic and environmental sense. Rob reviews the evidence, including a 2005 paper that he co-authered.

Rob concludes:

A 500 million ton per year sequestration program would be very significant, offsetting approximately one-third of annual U.S. carbon emissions. At this level, the estimated costs of carbon sequestration are comparable to typical estimates of the costs of emissions abatement through fuel switching and energy efficiency improvements. This result indicates that sequestration opportunities ought to be included in the economic modeling of climate policies.

Interesting.

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Reader Comments

LAO

July 22, 2009 01:12 PM

Sounds like a sure way to dilute the intent of reducing U.S. dependence on imported oil. But wait, in a few million years, maybe those forests will turn into new oil.

Joe Cushing

July 22, 2009 10:06 PM

Lao,

It's worth pointing out that dramatically cutting oil consumption would make us more dependent on foreign oil as a percentage of oil consumed. This is because a dramatic cutting of consumption would reduce the price of oil below the cost of many methods of producing it at home. We would only buy oil from the cheapest of sources--places like Saudi Arabia and Iraq.

LAO

July 23, 2009 09:50 AM

Joe, I could easily fall into a chicken/egg argument here as I am not pretending to offer insight but rather am seeking to develop it. I assume that oil industry subsidies were intended to counteract cheap OPEC oil, but contrary to conventional logic, it went to profits instead of exploitation of available domestic sources. OPEC merely scales back production to keep their deliriously happy price, and hoarders and speculators appear to have similar power. Perhaps it was Canadian oil sands producers that have been the real beneficiaries of that behavior.

I'm sure cap and trade could deliver its own unexpected twists, but in concept all sources should be subject to the same effects, and so I see no reason why any parties would change their behavior regarding price points just because total demand dropped.

Regarding the national pocketbook, we don't know where biological sequestration might occur -- could be the Amazon rather than in the U.S. -- and that is a notable difference to the domestic economy, whereas efficiencies and to a certain extent alternatives will generate strictly domestic cash flow and at some point will reduce imports as well. Why should I even care whether the foreign/domestic split should shift from 70%/30% to 80%/20% if the total spent on foreign drops? I.e. I calculate that with that shift a 20% drop in consumption would still produce a foreign import reduction of 9%, assuming constant pricing.

Mouli Cohen

July 24, 2009 05:49 PM

Does this fall into the category of a potentially elegant solution that will get overly complicated once the policy makers get involved?

I look forward to seeing your thoughts on the economics of these solutions moving forward weighed against the costs of inaction or less pessimistically alternative methods. I think its important to get private business on board with creating these necessary changes, but without monetizing these answers some how in a way that either promotes or hurts the bottom line, that will be more difficult to come by.

In the meantime as we wait for large-scale efforts, maybe we can all just start in our own backyards and communities.

I appreciate the perspective and thanks for pointing out this report.

-MC
http://www.scribd.com/moulicohen

Strategery

July 31, 2009 05:40 PM

Americans need to oppose all forms of CO2 regulations. There is no intent to reduce CO2 emissions at all. A cap and/or carbon tax is merely a ploy for the government to levy a tax on virtually every human activity (and the bankers that control the government, such as Goldman Sachs, are in favor of the caps). A segment in the film "The Obama Deception" explains this.

FYI: Carbon sequestration will require us to burn anywhere from 10%-40% MORE coal. The additional energy is needed to manufacture and operate equipment for sequestration. This is similar to emission control equipment on vehicles which actually reduce MPG and increase CO2 emissions.

Everyone focuses on the supply side when there is a HUGE potential for reduction on the demand side. This would require a change in behavior though, like adjusting the thermostat to uncomfortable levels and trading McMansions for a modest house (less than 700 sq/ft per person).

Thank you for your interest. This blog is no longer active.

 

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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