تجزیه و تحلیل هزینه - منفعت از بسته اتحادیه اروپا 20/20/2020

The European Commission did not publish a cost–benefit analysis for its 2020 climate package. This paper fills that gap, comparing the marginal costs and benefits of greenhouse gas emission reduction. The uncertainty about the marginal costs of climate change is large and skewed, and estimates partly reflect ethical choices (e.g., the discount rate). The 2010 carbon price in the EU Emissions Trading System can readily be justified by a cost–benefit analysis. Emission reduction is not expensive provided that policy is well-designed, a condition not met by planned EU policy. It is probably twice as expensive as needed, costing one in ten years of economic growth. The EU targets for 2020 are unlikely to meet the benefit–cost test. For a standard discount rate (3% pure rate of time preference), the benefit–cost ratio is rather poor (1/30)—so that benefits need to be very much higher, or costs very much lower than typically assumed to justify the 2020 targets. Only a very low discount rate (0% PRTP) would justify the 20% emission reduction target for 2020.

The European Union aims to limit its 2020 greenhouse gas emissions to 80% of its 1990 emissions (European Parliament and Council of the European Union, 2009a and European Parliament and Council of the European Union, 2009c) and to meet 20% of its final energy needs by renewables (European Parliament and Council of the European Union, 2009b). The European Commission has published an impact assessment (CEC, 2008a and CEC, 2008b), but not a cost–benefit analysis—an earlier cost–benefit analysis (CEC, 2005a and CEC, 2005b) covered the ultimate target (2 °C) but not the intermediate ones, let alone the details of policy implementation. This paper fills the gap, estimating the costs and the benefits of reducing greenhouse gas emissions by 20% in a decade.1 Climate policy is one of the cornerstones of EU policy. The European Union seeks to be a world leader in this area, an ambition which is broadly supported by the public (TNS Opinion and Social, 2009). The “climate and energy package” for 2020 implements European climate policy in the medium-term. The EU Emissions Trading System (ETS) for carbon dioxide will be expanded in scope, the cap will be tightened, and permits will increasingly be auctioned. There are, for the first time, firm targets for greenhouse gas emissions outside the ETS. There are targets for the market share of renewable energy too, that interact with the emission reduction targets. These policies will raise the price of energy, slow down economic growth, and reduce welfare. In return, emissions will fall, climate will change less, and the impacts of climate change will be reduced. It is reasonable to ask whether the benefits – i.e., the avoided damages of climate change – outweigh the costs. Maybe European climate policy is too ambitious, or maybe it is not ambitious enough. The results of cost–benefit analyses should always be interpreted with care, because estimates of the costs and the benefits of an intervention are never complete and rarely do justice to the complexity of the situation (Pearce, 1976). These problems are particularly pronounced for evaluations of such problems as climate change, which is global, diffuse, unequal, long-lived, and uncertain (van den Bergh, 2004). Nevertheless, cost–benefit analysis, as indeed any form of formal policy evaluation and assessment, is far superior as a guide to good policy than the hand-waving practised by some politicians. The results of this paper should therefore be treated with caution but not dismissed out of hand. The analysis in this paper is about climate change. The policy package also refers to the benefits of improved energy security, higher employment, and accelerated innovation. I do not attempt to quantify these benefits, or even argue about the likely sign. In Section 2, I survey the economic impacts of climate change. In Section 3, I study the impacts of greenhouse gas emission reduction. In Section 4, I combine the two in a cost–benefit analysis of the EU 20/20/2020 package. Section 5 concludes.

In this paper, I survey the marginal impacts of climate change and the (marginal) impacts of greenhouse gas emission reduction, particularly in the European Union. I then bring the two strands together in a cost–benefit analysis of the EU targets for 2020. The marginal costs of climate change are uncertain, with negative surprises more likely than positive surprises. Estimates also depend on ethical choices, such as the discount rate. A modest carbon tax can be easily justified. The current carbon price in the ETS is well within the range of available estimates. Emission reduction can be done cheaply, but this requires that emissions gradually deviate from the baseline scenario and that policy is well-designed and takes account of previous regulations. Earlier research, here surveyed, found that planned EU policy does not meet these conditions. It is twice as expensive as needed, and would cost the equivalent of 1 in 10 years of economic growth. Comparing the orders of magnitude of the costs of emission reduction and the impacts of climate change suggests that the EU emissions targets for 2020 are not likely to meet the benefit–cost test. Indeed, for a standard discount rate, the benefit–cost ratio is rather poor (1/30). The EU targets become more attractive if policy implementation would be improved or if substantial weight would be placed on the remote future, but one would need a very low discount rate to justify the 20% emission reduction target for 2020. As EU climate policy for 2020 cannot stand on its climate merits, could the targets be justified in another manner? There are separate targets for renewable energy, which would promote “energy security”. Energy security is a fluid concept. Wind and solar power are less reliable than thermal power generation. Energy security may also be interpreted as diversification of supply. If so, promoting renewables is a second-best policy. Costs are unnecessarily high, and benefits have yet to be quantified (Roques et al., 2008). It would be better to support diversification in general rather than diversification through a specific technology. Energy security may also be interpreted as reducing the import of energy. Again, promoting renewables is a second-best policy, and costs are higher than need be. Benefits are unquantified—and may actually be negative as is usually the case with import substitution (Bruton, 1998). An expansion of nuclear power increases the risks of proliferation, reducing security. Conventional air pollution is effectively regulated already. More informally, politicians regularly argue that climate policy would stimulate economic growth, innovation, and employment. Raising the costs of an essential input to the economy is unlikely to accelerate economic growth (Weyant, 1993). Climate policy would redirect innovation rather than enhance it (Smulders and Gradus, 1996). While appropriate tax reform may stimulate job creation (Patuelli et al., 2005), actual policies are different. It is therefore unlikely that the EU greenhouse gas emission reduction targets would pass the cost–benefit test even if the scope is widened. This should be tested with further research.