In December 2015, climate policymakers from around the globe gathered in Paris and reaffirmed the importance of limiting global temperature increases to 2 degrees Celsius, and suggested an even more ambitious target of 1.5 degrees. The economic and infrastructural inertia associated with our fossil fuel-based energy supply suggests that meeting either of these temperature targets will be difficult, if not impossible, with emissions reductions alone. A new set of technologies has been proposed to address climate change, at least partially. Generally known as ‘climate engineering’ or ‘geoengineering’ technologies, they come in two flavours: solar radiation management and carbon dioxide removal.
Below we briefly describe these technologies from a scientific perspective, and then explore their potential to shake up the general conventions of climate change economics and policy.
Science and technology
Solar radiation management (SRM) describes a host of technologies designed to directly reduce incoming solar heat by reflecting it back into space before it reaches the Earth's surface (NRC 2015a). These technologies include mirrors in space, reflective particles in the stratosphere, and increased marine clouds or ocean reflectivity. Solar radiation management is quick and cheap. It is also uneven and imperfect. Once implemented, SRM can produce cooling effects within a year. Fully counteracting the warming effect of greenhouse gases could cost as little as a few billion dollars. But the use of SRM does nothing to compensate for other greenhouse gas-created damages, including ocean acidification. Moreover, SRM reduces temperatures better in some regions than in others, and these regional differences increase as more SRM is implemented.
Carbon dioxide removal (CDR) refers to technologies that remove carbon dioxide from the atmosphere after it has been emitted and fully mixed into the atmosphere (NRC 2015b). These technologies include bioenergy with carbon capture and storage, ocean fertilisation, and direct air capture. All of these technologies address the root of the climate problem – the emissions of greenhouse gases – but they are much more expensive than SRM or emissions reductions. Direct air capture could be a game-changer, depending on how cheaply it can be done. The main advantage of these technologies is that they can be placed anywhere in the world and can reduce atmospheric carbon dioxide independent of its origin. This is the closest we get to a true backstop technology.
Economic analysis of climate change policy typically focuses on abatement – reducing emissions of carbon dioxide and other greenhouse gas emissions. The characteristics of climate engineering technologies make them in some ways analogous to abatement strategies but in other ways quite different. Focusing solely on the costs of SRM, they sound too good to be true. However, in addition to its low implementation costs, it comes with substantial risks. These different approaches call for a substantial modification of economic analysis and policy design.
Among these technologies, solar radiation management has received the most attention in economic and policy literature because of its capacity to fundamentally alter the way we think about climate policy. But carbon dioxide removal, even with its high costs, is equipped with unique characteristics that create very interesting economics.
From an economic perspective, an optimal and cost-effective policy requires that all instruments are used at a level where their marginal costs are equalised, and that these marginal costs are equal to the marginal benefits. Optimally policy can be evaluated using an integrated assessment model, for instance, the DICE model (Nordau 2014). However, most such studies using these models omit climate engineering as a policy option. If climate engineering is a policy option, and if it has substantially lower costs that abatement, then including it in the models can fundamentally alter the optimal policy response.
Several papers modify DICE, or other integrated assessment models, by including climate engineering options. Ramstad and Tjøtta (2011), Goes et al. (2011), and Bickel and Agrawal (2013) modify DICE to include SRM technologies, and they consider whether including SRM passes a cost-benefit test. Bickel and Lane (2009) also model CDR in a modified DICE model. Heutel et al. (2015a) solve for optimal policy when SRM is included as a policy option along with abatement in DICE. The presence of SRM reduces the optimal level of abatement, reduces the optimal carbon price, pushes back the date when carbon emissions are eliminated, and increases net welfare by up to one-half of a percentage point of world GDP.
Uncertainty is endemic to climate policy, and the inclusion of climate engineering options introduces even more uncertainty. Few papers have carefully studied how uncertainty affects optimal climate engineering policy. Heutel et al. (2015a) model uncertainty in both climate sensitivity and in the magnitude of SRM side effects. Optimal SRM deployment is more sensitive to both types of uncertainty than optimal abatement is. Heutel et al. (2015b) consider the case of climate tipping points – large and irreversible changes to the climate system or to the economy (Lemoine and Traeger 2014). SRM can be used to reduce the likelihood of reaching one of these tipping points, and the effectiveness of SRM depends on the type of tipping point.
Much more research is needed to fully understand the optimal deployment of climate engineering. Most of the work to date has focused on SRM, while CDR remains understudied (primarily because its costs are currently prohibitively high). Little is known about how climate engineering affects learning, about either the climate system or about climate engineering itself.
SRM is cheap, quick, and can be implemented by individual countries, making it very difficult to control and coordinate. This has spurred a large number of articles in academic journals and the popular press arguing about the difficulties in governing any SRM scheme.
Economists have studied this from the perspective of international environmental agreements and coalition formation. Norms for climate engineering deployment are suggested in Victor (2008), and Ricke et al. (2013). Weitzman (2015) study mechanism design related to climate engineering governance. The most interesting result coming out of this analysis is that climate engineering changes the problem of free-riding into one of free-driving – that is, the capacity to decide a global temperature that fits national interests best. Coalitions that are powerful enough to geo-engineer the climate have an incentive to exclude other countries because other countries might want them to set the thermostat at a temperature less to their liking. These incentives differ markedly from those that dominate international politics of greenhouse-gas emissions reduction, where the central challenge is to compel free riders to participate.
CDR is very similar to abatement in regards to international relations. It is expensive, and costs need to be shared. It is unlike abatement in that fewer countries need to actively participate to achieve a goal. This solves a fundamental problem regarding abatement, eliminating the problem of cooperation and leaving only the coordination problem to be dealt with. Even after dealing with the mechanism for cost sharing, CDR imposes new challenges as well, mainly the decision of which country should host CDR efforts and how much risk should be allocated to each location. Just like wind turbines, ‘not-in-my-back-yard’ is bound to play an important role in this debate.
Almost everyone agrees that it is still far too early to incorporate climate engineering into our climate policy portfolio. More research is required for us to have a clearer understanding of the costs, benefits, and risks of these technologies. Our paper (Heutel et al. forthcoming) summarises the current state of the climate engineering economics literature – see also Barrett (2014) and Klepper and Rickels (2014). Deployment of SRM or CDR could make the climate problem irrelevant, it could merely help us buy time, or it could worsen this already complicated problem.
Though it is too early to begin climate engineering on a large scale, it is too late to ignore it completely. Given the amount of warming already committed and the impacts that are already being manifested, we cannot afford to limit our approach to either reducing emissions or adapting to climate change. We need to explore as many options as possible for our children to pull themselves out of the hole we have dug for them.
Barrett, S (2014), “Solar geoengineering’s brave new world: thoughts on the governance of an unprecedented technology”, Review of Environmental Economics and Policy 8 (2): 249-69
Bickel, J E, and S Agrawal (2013), “Reexamining the economics of aerosol geoengineering”, Climatic change, 119 (3-4): 993-1006
Bickel, J E, and L Lane (2009), “An analysis of climate engineering as a response to climate change”, Copenhagen Consensus Center Report, 40
Goes, M, N Tuana, and K Keller (2011), “The economics (or lack thereof) of aerosol geoengineering”, Climatic Change, 109 (3-4), 719-744
Gramstad, K, and S Tjøtta (2010), Climate Engineering: Cost benefit and beyond, no. 05/10, University of Bergen, Department of Economics
Heutel, G, J Moreno-Cruz, and K Ricke (forthcoming), “Climate Engineering Economics”, Annual Review of Resource Economics
Heutel, G, J Moreno-Cruz, and S Shayegh (2015a), “Solar geoengineering, uncertainty, and the price of carbon”, NBER Working Paper no. 21355
Heutel, G, J Moreno-Cruz, and S Shayegh (2015b), “Climate tipping points and solar geoengineering”, NBER Working Paper no. 21589
Klepper, G, and W Rickels (2014), “Climate engineering: economic considerations and research challenges”, Review of Environmental Economics and Policy 8 (2): 270—89
Lemoine, D, and C Traeger (2014), “Watch your step: optimal policy in a tipping climate”, American Economic Journal: Economic Policy 6 (1): 137-66
National Research Council (2015a), Climate Intervention: Reflecting Sunlight to Cool Earth, Washington, DC, National Academic Press
National Research Council (2015b), Climate Intervention: Carbon Dioxide Removal and Reliable Sequestration, Washington, DC, National Academic Press
Nordhaus, W (2014), “Estimates of the Social Cost of Carbon: Concepts and Results from the DICE-2013R Model and Alternative Approaches”, Journal of the Association of Environmental and Resource Economists 1 (1/2): 273-312
Ricke, K L, J B Moreno-Cruz, and K Caldeira (2013), “Strategic incentives for climate geoengineering coalitions to exclude broad participation”, Environmental Research Letters 8 (1): 014021
Victor, D G (2008), “On the regulation of geoengineering”, Oxford Review of Economic Policy 24 (2): 322-36
Weitzman, M (2015), “A voting architecture for the governance of free-driver externalities, with application to geoengineering”, Scandinavian Journal of Economics 17 (4): 1049-68