Costs of Reduction of Greenhouse Gas Emissions

Introduction

The solutions to the greenhouse gas emission problem incur two types of costs: static and dynamic. Calculation of the static costs stems from the actions which can be undertaken with currently available technologies, while the dynamic costs outlive the life of the specific project (Gillingham & Stock, 2018). Gillingham and Stock (2018) argue that since climate change is a long-term problem, it is necessary to recognize what interventions could be the most cost-effective not only today but in the future. However, from the viewpoint of a manager whose firm creates significant air pollution here and now, it seems reasonable to look for solutions with the lowest static costs.

Static Costs of Policies Are Extremely Wide

The abatement cost of greenhouse gas emissions reduction is measured in dollars per metric ton. This standard unit of measurement represents costs (or benefits) in dollars per ton of CO₂ emissions avoided (Gillingham & Stock, 2018). In that regard, analysis of static costs might become confusing since the costs of policies aimed at greenhouse gas emissions reduction fluctuate widely. For example, the static costs of wind energy subsidies ranged from $2 to $260/ton of CO₂ (Gillingham & Stock, 2018). For reference, the US government under the Obama administration estimated the social cost of carbon at $46 per ton of emissions (Gillingham & Stock, 2018). Therefore, a manager should analyze the feasibility of CO₂ emissions reduction policies depending on the regional specifics.

Certain Policies Can Reduce Emissions and Save Money Simultaneously

Some of the CO₂ emissions reduction policies appeared to have a negative dollar/ton CO₂ ratio. For example, behavioral energy efficiency yielded a -$190/ton CO₂ static costs, and the use of corn starch ethanol led to a -$18/ton CO₂ result in some instances (Gillingham & Stock, 2018). However, one should not express much joy at the notion that it is possible to simultaneously reduce CO2 emissions and save funds. According to Gillingham and Stock (2018), those negative costs came from the measures that produce a relatively small reduction in emissions. Moreover, the negative static costs are likely to be transitory, like in the case of ethanol (Gillingham & Stock, 2018). Overall, a manager of an air-polluting company should not expect to reduce CO₂ and save funds in the process.

Dynamic Costs Are Important for Expensive Technologies

Many of the low-carbon technologies are nascent, which makes them costly from the static perspective. Gillingham and Stock (2018) provided two examples of such technologies: solar panels and electric vehicles. Currently, both solutions are relatively expensive; however, their spread would likely lead to a significant cost reduction in the future (Gillingham & Stock, 2018). Therefore, it is essential not to neglect particular policies or technologies only because they are currently expensive. Their dynamic costs might fall in the future, making them a feasible solution for a mass greenhouse gas emissions reduction.

The Low-Cost Interventions Are Not Necessarily Cost-Effective

A focus on low static costs seems justified from a manager’s perspective. However, one should understand that this approach would not necessarily be the most cost effective in the long run. For instance, replacing coal electricity generation with natural gas might lead to high dynamic costs induced by long-lived natural gas infrastructure (Gillingham & Stock, 2018). On the contrary, providing subsidies for electric vehicles might instigate demand and make them much cheaper in the future (Gillingham & Stock, 2018). In that regard, a manager should not stop looking for more effective solutions because, once costly, technologies might become economically feasible.

Conclusion

Given the circumstances, a manager of an air-polluting company should consider solutions with the lowest static costs. However, that approach is not universal since the dynamic costs of expensive technologies, policies, and interventions might drop with time. Climate change is a long-term problem, which means that previously unfeasible cap-and-trade measures might become cost-effective due to changes in consumer behavior or technological advancements. Therefore, a manager should periodically review the situation and not neglect possible solutions because they are currently expensive.

Reference

Gillingham, K., & Stock, J. H. (2018). The cost of reducing greenhouse gas emissions. Journal of Economic Perspectives, 32(4), 53-72. Web.