CBO Suggests Linking Carbon Caps, R&D
September 20, 2006
02:15 PM
Congressional Budget Office Finds Price Signal for Carbon Control
Essential to Maximizing Benefits and Achieving the Lowest Cost
A report issued yesterday by the Congressional Budget Office (CBO) concludes that relying exclusively on research and development (R&D) funding is not the most effective strategy for reducing greenhouse gas emissions. CBO found that combining R&D subsidies with a gradually increasing price on emissions is a more cost-effective approach. The report, attached above, was requested by Sens. James Jeffords (I-VT) and Jeff Bingaman (D-NM).
One frequent criticism of mandatory policies to reduce greenhouse gas emissions has been that putting a market price on emissions would be too costly to the U.S. economy. Critics of mandatory greenhouse gas measures have argued that it would be just as effective, and cheaper, to rely simply on the development and voluntary adoption of new technologies.
CBO’s economic analysis, contained in the report, has demonstrated the opposite. It found that the way to reduce greenhouse gas emissions in the most cost-effective manner would be to combine a price for emissions with R&D funding. The combination strategy would balance the expected costs and benefits of both policies and achieve results that would not be obtained by either policy in isolation. Specifically, the CBO report found that:
"Relying exclusively on R&D funding in the near term… does not appear likely to be consistent with the goal of balancing costs and maximizing benefits or the goal of minimizing the costs of meeting an emissions reduction target ." (p. 2)
"A cost-effective approach to reducing emissions would entail both funding R&D and pricing carbon in the near term." (p. 17)
"The possibility that R&D would eliminate the value of near-term emissions reductions appears unlikely." (p. 17)
"Both pricing emissions and funding R&D would impose costs on the economy. Consequently, reducing emissions in the most cost-effective way would entail balancing the costs – and the expected payoffs – of both policies." (p.17)
"Analyses that consider the costs and benefits of both carbon pricing and R&D all come to the same qualitative conclusion: near-term pricing of carbon emissions is an element of a cost-effective policy approach."(p.17)
Sen. Jeffords, ranking member of the Senate Environment & Public Works Committee:
"This report confirms that technology approaches and research and development solutions cannot solve the climate change problem by themselves. Perhaps more importantly, to those that advocate such approaches alone, this report by the Congressional Budget Office confirms that using a cap or a tax is far more cost effective approach than an R&D approach alone. If the Bush Administration is serious about combating climate change at the lowest possible cost, it should heed the advice of the Congressional Budget Office, abandon its technology-only approach and seek legislation imposing some type of mandatory price signal for carbon, along with R&D incentives. That would put initiatives like the Asia Pacific Partnership and the Climate Change Technology program in proper perspective--helpful but nowhere near enough."
David Sandretti (Jeffords), 224-3975
Sen. Bingaman, ranking member of the Senate Energy & Natural Resources Committee:
"Our current policy of exclusive reliance on voluntary measures to reduce greenhouse gases has not really led to changes in the technologies we use. The Congressional Budget Office’s analysis explains why we have not seen the shift we have been hoping for. It also explains why it makes sense to combine existing policies to fund R&D with a mandatory price signal. We will be wasting taxpayer dollars, if we continue to rely exclusively on government supported R&D to solve the problem of global warming. If we are going to address climate change at the lowest possible cost to taxpayers and society, we need a combined strategy of funding R&D and sending the right price signal to markets. I have been proposing a cap-and-trade approach to establish such a price signal on greenhouse gas emissions, with the funds raised by auctioning allowances dedicated to R&D and technology deployment. I find CBO's new report an encouraging indicator that this is the right path forward."
Bill Wicker (Bingaman), 224-5243
