Wednesday, 25 February 2009

Economic crisis complicates climate crisis in more ways than one

California is a leader in the United States when it comes to environmental regulation. But the economic crisis threatens to undermine its climate-friendly plans. The New York Times gives the example of CalPortland, a cement company in Colton, which is struggling to find the resources to retrofit its plant to reduce CO2 emissions. Whereas lawmakers had estimated it would cost $200 million to upgrade all eleven cement plants in the state, now it looks like that much would be needed just for the Colton plant. And with the economic crisis, cement prices have fallen to levels that force a revision of the cost-benefit calculus for climate-related investments.

I think the bigger lesson is that the economic crisis presents policymakers with a "double distributive" burden: the distribution of costs and benefits resulting from a process of decarbonising our economies, complicated further by the loss of jobs and economic opportunities during a severe recession. It's one thing to claim that 'green' jobs can be created; quite another when the pressure of job losses in other sectors builds up. Any economic restructuring would involve distributive questions; this time it's just doubly challenging.

Which brings me to my final point: what happens when developing countries try to reduce their emissions? One feasible pathway for countries like China and India is to increase the efficiency of their coal-fired power plants, using already available improved technologies (more on those details in a few days). While improved efficiency would have economy-wide benefits, it is hard to find good estimates of how the incremental costs of upgrading plants would affect individual sectors of the economy (power generation, cement, iron and steel, etc.). Without such estimates, it would be harder still to measure the distribution of costs and benefits across sectors. And, more importantly, it would undermine developing countries' efforts to secure guaranteed financing from rich countries for technological upgrades.

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