Climate Change: Current Issues and Policy Tools
Prepared for Members and Committees of Congress
On June 2, 2008, the Senate agreed to consider a bill (S. 3036) to control greenhouse gas
emissions in the United States. This action is indicative of the pressures Members of Congress
increasingly face on whether and how to address human-induced climate change. Contentious
debates scrutinize issues of science, economics, values, geopolitics and a host of other concerns.
Deliberations also weigh the appropriateness of alternative policy tools and program designs. The
economic stakes are potentially large—with both the costs of controls and the “costs of inaction”
ranging, by some estimates, into trillions of dollars over several decades.
A major international assessment released in 2007 concluded that the Earth’s climate had warmed
unequivocally over the past century, and that elevated levels of so-called “greenhouse gases”
(GHG) were likely responsible for a major portion of the observed warming. Elevated
concentrations of GHG in the atmosphere are due mostly to human activities, especially
emissions from use of fossil fuels, clearing of land, and some industrial processes. Continued
population and economic growth, with dependence on fossil fuels and needs for expanding st
agricultural lands, are expected to drive GHG emissions and induced climate change over the 21
Century to levels never experienced by human civilizations. While benefits may accrue to some
people who may experience a limited amount of climate change, the aggregate effects are
expected to become increasingly adverse, with people living in dry regions or along low-lying
coasts, and people with low incomes, expected to be especially vulnerable. Adaptations can
moderate the impacts and expand opportunities, but at a cost. Besides the overall costs of climate
change, key concerns include the distributional effects within and across generations, how to
value ecological impacts, and the potential for abrupt and irreversible changes. While important
uncertainties remain concerning future climate change and its impacts, many experts are
convinced that the evidence calls for U.S. action to abate GHG emissions. Others argue that
mandatory controls would be premature, unnecessary or too costly.
For decision-makers considering actions to address climate change, an assortment of policy
instruments is available; studies suggest that a combination could be most effective in achieving
various climate policy objectives. Current policy attention has focused on “cap and trade”
strategies to reduce GHG emissions, with additional policy tools aimed at promoting the
technology development considered necessary to slow climate change significantly. In parallel,
growing attention is being given to supporting adaptations to expected future changes, as well as
to strategies to gain effective international engagement in reducing GHG. One significant obstacle
to consensus is concern about the potential costs of abating GHG emissions, since deep
reductions would require extraordinary changes in energy use and technologies. Studies suggest
that efficiently designed programs could moderate the costs of reducing GHG emissions;
technically and politically, though, an “efficiently designed” program may not be realistic. Policy
options can ease the adjustments required and modify the distribution of costs—or potential
wealth embodied in distribution of emission allowances—across specific sectors or populations.
A core challenge of policy design, then, is balancing the climate effectiveness of a policy, the
economic costs, and its distributional effects.
Introduc tion ..................................................................................................................................... 1
Part One: Current Climate Change Issues.......................................................................................2
Climate Change Science...........................................................................................................2
Observed Changes in Global Climate.................................................................................2
Causes of Observed Climate Change..................................................................................2
Sources of GHG Emissions, and Removals from the Atmosphere..........................................3
Projections of Greenhouse Gas-Induced Climate Change........................................................5
Potential Impacts of Projected Climate Change........................................................................6
Proposed Greenhouse Gas Concentration Targets.....................................................................7
Program Design and the Costs of GHG Mitigation..................................................................8
Distributional Impacts of Programs....................................................................................9
Climate Change and Other Policy Issues: Commonality or Conflict?................................9
U.S. Costs of GHG Mitigation..........................................................................................10
Global Costs of GHG Mitigation.......................................................................................11
Benefits of Mitigating Climate Change...................................................................................11
Inadequate data, tools and understanding of impacts........................................................11
Global Costs of Climate Change.......................................................................................12
Potential Costs of Climate Change to the U.S. Economy.................................................13
“Co-Benefits” and Trade-offs of GHG Mitigation............................................................14
Importance of the Distribution of Losses (or Gains)...............................................................15
Part Two: The International and Domestic Policy Fields..............................................................15
Status of International Cooperation on Climate Change.........................................................15
The United Nations Framework Convention on Climate Change....................................15
The Kyoto Protocol...........................................................................................................16
The United States Rejected the Kyoto Protocol................................................................16
“Common but Differentiated Responsibilities”................................................................16
The Bali Action Plan.........................................................................................................16
Current Domestic Policy on Climate Change.........................................................................17
Goal ................................................................................................................................... 17
Regional, State and Local GHG Policies .........................................................................18
Climate Change Litigation................................................................................................19
Part Three: The Policy Tool Box...................................................................................................19
Regulatory and Market Tools to Reduce Greenhouse Gases..................................................20
Design Choices in Cap-and-Trade Programs....................................................................21
Distributing the Revenues from Taxes or Sales................................................................23
Market Facilitation Tools........................................................................................................23
Tools to Stimulate Technological Change...............................................................................24
Unintended Consequences for Technology Incentives.....................................................25
Options to Ease the Economic Transition...............................................................................25
International Policy Tools.......................................................................................................26
Tools to Stimulate Adaptation to Climate Change..................................................................27
Choices Ahead for Policy-Makers.................................................................................................27
Figure 1. Estimated Sectoral and Greenhouse Gas Shares of Global Emissions in 2005...............4
Figure 2. Estimated Top 20 Emitters of Greenhouse Gasses in 2005..............................................5
Author Contact Information..........................................................................................................28
The Earth’s surface has warmed by 1.1o to 1.5o Fahrenheit since the Industrial Revolution and
precipitation has increased over the past century, although some regions have become wetter
while some have become drier. Increases in ocean temperatures, altered wind patterns, extreme
weather events, melting glaciers and sea ice, and timing of seasons have also been observed. The
Intergovernmental Panel on Climate Change (IPCC) in 2007 declared that “[w]arming of the
climate system is unequivocal....” and that most of the observed change since the 1970s is likely 1
due to greenhouse gases emitted as a result of human activities. Experts project that, if
greenhouse gas (GHG) emissions are not abated well below current levels, the Earth’s climate
will warm further—to levels never experienced by human civilizations. If, and as, the climate
moves further from its present state, it will reconfigure the patterns to which current human and
ecological systems are adapted, and the risk of abrupt changes will increase.
Understanding of the magnitude, causes, and implications of climate change continues to grow.
But alongside efforts to further that understanding, a sense of urgency is spurring many
international, national, regional, and local policymakers, industry leaders, non-governmental
organizations (NGOs), and citizens to mobilize toward more concrete actions. Concern about
poorly understood but potentially catastrophic impacts of human-induced climate change drives
the impetus to identify, evaluate, and initiate concrete policy actions to address human
activities—such as the emissions of greenhouse gases (GHG), land use changes, and forestry
practices—believed to contribute to climate change. In parallel, growing attention is being given
to characterizing and supporting adaptations to changes already observed or expected future
Domestic actions to address climate change are moving independently across many fronts. In the th
110 Congress, numerous bills have been proposed to address climate change research and
policy; one bill (S. 2191) that would cap and reduce greenhouse gas emissions was reported by
the Senate Committee on Environment and Public Works and the Senate agreed on June 2, 2008
to consider the bill (now S. 3036). The Supreme Court in 2007 ruled that the Administration must
consider regulating greenhouse gases from motor vehicles as air pollutants, and President George
W. Bush in 2008 proposed a qualified national goal for U.S. greenhouse gas emissions to peak by
2025 and then decline. States and localities have moved forward with their own plans and
regulations in lieu of a strong national framework. Primary concerns are the costs, which could
reach trillions of dollars over coming decades, depending on policy choices; the distribution of
those costs; and the effectiveness of policies, with the knowledge that U.S. greenhouse gas
reductions would achieve success only if sufficient international cooperation can be achieved as
Debate internationally has revived over how nations may commit to mitigation, adaptation and
technology actions beyond 2012, the end of the current commitment period of the Kyoto Protocol
to the United Nations Framework Convention on Climate Change. Negotiations are aiming to
produce a post-2012 decision by the end of 2009. U.S. domestic policy development could
influence and support international cooperation or introduce impediments, depending on how the
1 Intergovernmental Panel on Climate Change Working Group I. Climate Change 2007: The Physical Basis.
Cambridge, UK: Cambridge University Press, 2007. (p. 1).
interplay is managed. The stakes are potentially high: the effectiveness of mitigating human-
induced climate change depends on action by all major emitters, while the costs of delay, deferral
or ineffectiveness have been projected by some analysts to reach many trillions of dollars over
This report does not discuss or analyze current legislative proposals. Rather, it introduces the
reader to fundamentals of the climate change issue. Part One summarizes current understandings
and controversies concerning the science, economics, international cooperation, and other aspects
of the climate change policy problem. Part Two is a brief update on the status of domestic and
international policies. Part Three outlines the policy toolbox seen as being available to
policymakers to address the challenge as they define the emerging legislative agenda.
The Earth’s surface has warmed by 1.1o to 1.5o Fahrenheit since the Industrial Revolution
(measured since 1880), with most warming occurring since the 1970s. Precipitation has increased
over the past century, although some regions have become wetter while some have become drier.
These results are consistent with scientists’ understanding of how heightened greenhouse gas
concentrations affect climate regionally. Increases in ocean temperatures, altered wind patterns,
extreme weather events, melting glaciers and sea ice, and timing of seasons have also been
observed. The Intergovernmental Panel on Climate Change (IPCC) in 2007 declared that
“[w]arming of the climate system is unequivocal. ...Observational evidence from all continents
and most oceans shows that many natural systems are being affected by regional climate 3
Although there is significant natural variability in the Earth’s climate, scientists recognized more
than a century ago that pollution from human activities could theoretically warm the Earth.
Greenhouse gases (GHG) in the Earth’s atmosphere allow the Sun’s short wave-length radiation
to pass through to the Earth’s surface. Once the radiation is absorbed by the Earth and re-emitted
as longer wave-length radiation, GHG trap the heat in the atmosphere. This is often called the
“greenhouse effect.” The natural presence of GHG (especially water vapor and carbon dioxide) in
the atmosphere warms the Earth to habitable temperatures.
Studies show that solar variability has contributed some of the observed changes in global
temperature, especially early in the 1900s. A few studies conclude that, at most, solar variability
2 For further information, see CRS Report RL34266, Climate Change: Science Update 2007, by Jane A. Leggett.
3 Intergovernmental Panel on Climate Change Working Group I. Climate Change 2007: The Physical Basis.
Cambridge, UK: Cambridge University Press, 2007. (p. 1).
has contributed 10 to 40% of the observed change of the 20th century.4 Further research would be
required to quantify how some suggested influences, for example, galactic cosmic rays,
contribute to observed climate changes.
Most scientists conclude that a majority of the Earth’s warming since the 1970s is due to GHG
emissions from human activities, especially use of fossil fuels, clearing of land, and some
industrial processes. While scientists agree that GHG in the atmosphere are responsible for
trapping the Sun’s radiation and raising the Earth’s temperature to current levels, some scientists
disagree that projected increases in GHG concentrations would raise temperatures significantly.
Beyond water vapor (which is thought not to be directly influenced by humans), the best-
understood greenhouse gases include:
• carbon dioxide (CO2),
• methane (CH4),
• nitrous oxide (N2O), and
• certain fluorinated compounds, including chlorofluorocarbons (CFC),
hydrochlorofluorocarbons (HCFC), hydrofluorocarbons
• (HFC), perchlorofluorocarbons (PFC) and sulfur hexaflouride (SF6).5
• These GHG remain in the atmosphere for decades to thousands of years and are
generally well-mixed around the globe; hence, their warming effects are largely
global and persist for decades to millenia. The long atmospheric residence also
means a long lag between policies to abate GHG emissions and their full effects
on the climate system.
• When emissions of the long-lived GHG are greater than their removals by, for
example, photosynthesis, the GHG accumulate in the atmosphere: the GHG
concentrations increase. The increases of concentrations of specific GHG since
the Industrial Revolution (measured since about 1850) include:
• CO2 by more than 33%, from about 280 parts CO2 per million (ppm) to current
levels of over 380 ppm,
• Methane (CH4) by about 150%, although the rate of increase has declined over
the past decades to essentially no growth (but variable year-to-year), and
• Nitrous oxide (N2O) by 16%;
4 A number of peer-reviewed references are available from CRS upon request.
5 Additional pollutant emissions indirectly affect climate change, largely on the local to regional scale; they include
carbon monoxide (CO), nitrogen oxides (NOx) other than N2O, and non-methane volatile organic compounds
(NMVOC), and particulate matter or aerosols. Perhaps more important, human-induced climate change and land uses
may indirectly affect water vapor in the atmosphere, influencing both global and regional climate change, including the
distribution of precipitation, and are likely to alter the reflectivity of the Earth’s surface. Compared to other effects,
these effects are poorly understood, though they may have large impacts.
• essentially all concentrations of CFC, HCFC, HFC, PFC, and SF6.
Human-related GHG emissions are partly offset by human-related carbon removals and
sequestration in growing forests, some agricultural soils, and other reservoirs. Such “sinks” offset
about 11% of U.S. GHG emissions in 2005.
Figure 1. Estimated Sectoral and Greenhouse Gas Shares of Global Emissions in
CO2 - Land Use and
Ot he r
CH4 - Energy
CH4 - Agriculture
7%CO2 - Fuel
CH4 - Waste63%
N2O - Agriculture
Source: CRS graphic with estimates from International Energy Agency, CO2 Emissions from Fuel Combustion 1971-
2005, 2007, online database. Data extracted January 16, 2008.
For the year 2005, CO2 constituted approximately 74% of the global, human contribution to long-6
lived GHG emissions; CH4 was about 16%, and N2O was about 8% (Figure 1).
Globally in 2005, the top 10 emitting countries contributed about 60% of global GHG emissions, 7,8
and the top 20 emitting countries contributed about 72% of global GHG emissions. China 9
probably is now the leading emitter of human-related GHG, likely having recently surpassed the
6 These shares exclude emissions of CFC, HCFC and other substances that are controlled to protect the stratosphere. In
policy discussions, these emissions typically are not counted as “GHG”; also, they are generally estimated as potential
emissions when they are manufactured, not as actual emissions, so the method to count them is different from other
GHG. Reducing them would, however, help to reduce climate change.
7 See also CRS Report RL32721, Greenhouse Gas Emissions: Perspectives on the Top 20 Emitters and Developed
Versus Developing Nations, by Larry Parker and John Blodgett.
8 According to agreed international guidelines, countries report emissions from international bunker fuels (for
international travel and shipping) but do not include them in country totals. Emissions from international bunker fuels th
were almost 1000 metric tons of CO2e in 2005, and are almost as much as the 6 largest emitting country in the world.
9 This conclusion is based on uncertain estimates of GHG emissions internationally. While the supporting data are not
United States (Figure 2). Most experts expect that Chinese and other developing countries’ GHG
emissions will continue to grow more rapidly than those of the United States and other already
Figure 2. Estimated Top 20 Emitters of Greenhouse Gasses in 2005
Source: CRS graphic with emission estimates from International Energy Agency, op. cit.; data extracted May 5,
The climate-related impacts borne by human and ecological systems will depend on the 11
combination of natural climate variability plus human-induced climate changes. Scientists st
project that, during the 21 Century, it is very likely that rising GHG emissions, as expected with
precise, experts have high confidence that if recent trends prevail, China will be the largest net source of GHG by the
end of the decade.
10 For further information, see CRS Report RL34266, Climate Change: Science Update 2007, by Jane A. Leggett.
11 Natural climate cycles and forcings, such as volcanoes, will continue; the combined natural and human-induced
changes may result in stable or declining observed temperatures for some periods, as projected by some through 2015,
likely followed by more rapid increases due to the natural cyclic increase plus the GHG-induced increase.
current trends and policies, and the resulting higher concentrations in the atmosphere, will raise oo
the global average temperature above natural variability by at least 1.5 Celsius (2.7 Fahrenheit)
above 1990 levels. The estimates considered most likely by many scientists are for GHG-induced oo
temperature increases around 2.5 to 3.2C (4.5 to 5.8 F) by 2100. There is a small but not trivial oo
likelihood that the GHG-induced temperature rise may exceed 5C (9 F) above natural variability
by 2100. In context, the global average temperature is estimated currently to be approaching or
exceeding the highest level experienced since the emergence of human civilizations.
Future climate change may advance smoothly or sporadically, and some regions are likely to
experience more fluctuations in temperature, precipitation, and frequency or intensity of extreme
events than others. Almost all regions are expected to experience warming; some are projected to
become warmer and wetter, while others would become warmer and drier. Sea levels could rise
between 7 and 23 inches by 2100, not including the effects of possible accelerated melting of the
Greenland or Antarctic ice sheets. Patterns consistent among different models have led to some
common expectations: GHG-induced climate change would include more heat waves and
droughts; decreased extreme cold episodes; and increased summer warming and dryness in the
central portions of continents. Scientists also expect precipitation to become more intense when it 12
occurs, thereby increasing runoff and flooding risks.
A wide band of uncertainty surrounds projections of impacts, and in particular, critical thresholds
for non-linear or abrupt effects. Some impacts of climate change are expected to be beneficial in
some locations with a few degrees of warming (e.g., increased agricultural productivity in some
regions, less need for space heating, opening of the Northwest Passage for shipping and resource
exploitation). Most impacts are expected to be adverse (e.g., lower agricultural productivity in
many regions, drought, rising sea levels, spread of disease vectors, greater needs for cooling).
Risks of abrupt, surprising climate changes, with accompanying dislocations, are expected to
increase as global average temperature increases, and could push natural and socio-economic
systems past key thresholds of tolerance.
Some populations will have the resources to migrate and adapt successfully—even profit from
new opportunities that will emerge—while others could lose livelihoods or lives. Adaptations can
help mitigate impacts and damage costs, but also impose costs, often on those who can least
afford them. Because climate change will occur with different magnitudes and characteristics in
different regions, resulting dislocations and disparities across locations may have implications for
political stability and security.
Some experts and stakeholders believe that likely ecological disruptions are among the most
compelling reasons that humans must act to reduce their interference with the climate system. As
the degree and distribution of climate changes continue, ranges of species are likely to change.
Climate change is highly likely to create substantial changes in ecological systems and services in
some locations, and may lead to ecological surprises. The disappearance of some types of
regional environments also raises risks of extinctions of species, especially those with narrow
geographic or climatic distributions, and where existing ecological communities disintegrate. One
12 Kevin E. Trenberth et al., “The Changing Character of Precipitation,” Bulletin of the American Meteorological
Society (September 2003), p. 1205.
study13 projects that, under a high climate change scenario, 12 to 39% of the Earth’s land areas
may experience climates not found at present, while 10 to 48% of land areas’ existing climates
may disappear from the Earth by 2100. In the low climate change scenarios, 4 to 20% of land
areas experience new climates and 4 to 20% see existing climates disappear. The researchers
concluded, “[t]here is a close correspondence between regions with globally disappearing
climates and previously identified biodiversity hotspots; for these regions, standard conservation
solutions (e.g., assisted migration and networked reserves) may be insufficient to preserve
Many different views exist regarding how much concern to give to ecological impacts:14 some
people value the impacts only according to the services that natural systems provide to humans
(for example, for recreational activities or provision of food); other people emphasize ethical
perspectives, for example, for stewardship of the Earth’s resources. Likewise, some people 15
emphasize the relatively mild impacts possible for the United States, while others give weight to
the catastrophic impacts likely for at least some populations in other countries. Such differences
in values are behind many of the controversies in the public debates about how to address climate
change, and what part of the global effort the United States should undertake.
Growing attention to impacts and possible adaptations has led, in the 110th Congress, to proposals
in a number of bills that would increase research and programmatic attention on possible impacts
of climate change and options for adaptation. Some bills are cross-sectoral, including some that
propose to repeal and replace the Global Change Research Act of 1990; others are targeted to
specific concerns, such as drinking water or wildlife. Some proposals are aimed at increasing
research on impacts and adaptation, while others are intended to provide authority and resources
to plan and carry out specific adaptations in selected sectors.
The wide range of uncertainty regarding how much GHG emissions may rise, how much the
climate may change, and how risky those changes may be (and how they are distributed among
different populations) results in a broad spectrum of views regarding whether and how deeply to
reduce GHG emissions.
To limit future risks, many experts propose targets to cap or “stabilize” the concentrations of
GHG in the atmosphere; any level of stabilization is associated with a wide range of possible
temperature outcomes. Current CO2 concentrations are over 380 parts per million (ppm); future
projections in the absence of changes from current policies range from about 550 ppm to almost
1000 ppm by 2100. Most debate concerning the appropriate level at which to stabilize GHG
concentrations is around levels of 450, 550 or 650 ppm by 2100. Some people advocate targets as
low as 350 ppm (lower than current concentrations), while others oppose setting stabilization
13 John W. Williams, Stephen T Jackson, and John E. Kutzbach, “Projected distributions of novel and disappearing
climates by 2100 AD,” Proceedings of the National Academy of Sciences of the United States of America 104, no. 14
(April 3, 2007).
14 See also CRS Report 98-738, Global Climate Change: Three Policy Perspectives, by Larry Parker and John
15 See discussion later of projected costs of climate change to the United States. While highly uncertain, projected
climate change could have relatively mild impacts on the United States in aggregate, although some regions and
populations will be more adversely affected than others; some populations may benefit from climate change.
targets altogether. Preferences for alternative targets are partially explained by differing views of
how great the adverse impacts of climate change would be, associated with different stabilization 16
targets, and differing views of how to address risks.
The “Stern Report,” discussed further in the economics sections below, concluded that,
[s]tabilising [atmospheric concentrations] at or below 550 ppm CO2 e17 would require global
emissions to peak in the next 10 - 20 years, and then fall at a rate of at least 1 - 3% per
year....By 2050, global emissions would need to be around 25% below current levels. These
cuts will have to be made in the context of a world economy in 2050 that may be 3 - 4 times
larger than today - so emissions per unit of GDP would need to be just one quarter of current
levels by 2050. To stabilise at 450 ppm CO2e, without overshooting, global emissions would
need to peak in the next 10 years and then fall at more than 5% per year, reaching 70% 18
below current levels by 2050.
While technologies exist today to begin such a trajectory, the target would require development
and deployment of new technologies over the longer term.
Greenhouse gas control programs raise concerns about costs: that the costs may be large; that the
costs of mitigation may exceed the benefits of mitigation; or, that the distribution of costs may not
be “fair.” Many studies show that costs would be influenced by the:
• stringency of the reductions,
• timing of its reductions, and
• flexibility allowed by the program design.
Designing “flexibility” in a GHG mitigation program (e.g., allowing trading of emission permits;
generation by non-covered sources of emission reduction credits or “offsets” against 19
allowances; banking or borrowing of permits; etc.) can significantly lower costs, according to 20
Modeled estimates of costs for a given GHG reduction program typically vary because of
differences in the models used; and methods and assumptions, regarding, among other factors:
• economic and energy growth rates without policies;
16 Views on appropriate targets may also be partially explained by different perceptions of the challenges and costs of
reducing GHG emissions.
17 CO2e means “carbon dioxide equivalents,” which is an aggregate of all GHG with each gas weighted by its effect on
climate change compared to CO2.
18 Stern, Nicholas. The Economics of Climate Change. Stern Review Report. London: HM Treasury, October 30, 2006.
http://www.hm-treasu r y.gov.uk/ independ en t_ reviews/ stern_review_ economics_ cli mate_ ch an ge/
stern_review_report.cfm. Executive Summary, p. xi.
19 See CRS Report RL34436, The Role of Offsets in a Greenhouse Gas Emissions Cap-and-Trade Program: Potential
Benefits and Concerns, by Jonathan L. Ramseur.
20 See CRS Report RL33799, Climate Change: Design Approaches for a Greenhouse Gas Reduction Program, by
• future energy resource availability and prices;
• availability, efficiencies and costs of technologies;
• specific assumptions about program design (such as the scope of emission
trading or offsets allowed; whether emission permits are given or auctioned; uses
of any revenues, etc.);
• responsiveness of people’s choices and technology development to policy
• the scope of costs and “co-benefits” counted in the analysis.
Some but not all differences among results represent irreducible uncertainties; specification (e.g.
of program design) and study of appropriate assumptions can allow one to build more confidence
in some estimates than others. Many insights may be gained from the sensitivity analyses
provided, which illustrate how costs and distributional impacts may vary with alternative
judgments regarding the future and the specific program designs. Studies indicate that mitigation
and adaptation efforts could also support other policy objectives (“co-benefits”), such as
improving energy security and reducing health costs of pollution. Such co-benefits are discussed
in a later section.
Critical to many policy-makers in GHG mitigation and design of program are the distributions of
costs on specific industry sectors and employment groups, U.S. regions, and income groups. One
particularly challenging issue is how to address concerns regarding possible harm to trade and
competitiveness of those countries and industries that shoulder the responsibilities of GHG
reductions. To the degree that those industries (or companies within industries) increase their
costs with mitigation measures, they may experience a price disadvantage in relation to
competitors without GHG requirements or competitors that are advantaged by GHG regulation
(for example, sources that have positioned themselves to reduce emissions at lower costs than
Other groups that are likely to be disproportionately impacted by policies to limit GHG emissions
include low income populations, which typically spend more of their incomes on energy bills, and
may not have choices or control over factors that determine their energy dependence (such as
renters). Alternatively, some groups may gain disproportionately from GHG controls. For
example, manufacturers that specialize in high-efficiency vehicles would experience different
costs, market share, and profitability than manufacturers that specialize in high-powered vehicles.
Some groups may benefit from certain policy designs, for example, depending on whether
existing GHG emitters are given (rather than sold) their emission permits (“allowances”). These
“equity” issues may drive policy design, and could make the emerging policy overall more costly,
but with more acceptable distributional effects.
Because GHG emissions are related to so many sectors, climate change policy inevitably affects
other national policy objectives, such as public well-being, reliable energy services, affordable
food supply, and prudent management of natural resources. Many technologies and policy options
can serve all or many policy objectives. For example, economical investment in energy efficiency
can support all the goals above. Other options, such as promoting ethanol production from corn,
may involve difficult trade-offs. Cross-issue analysis can help to maximize win-win choices and
avoid conflicts, but may be under-utilized due to lack of resources, disciplinary or jurisdictional
obstacles, or uneven input into policy processes.
Analyses by the Energy Information Administration and the Environmental Protection Agency
suggest that efficiently designed GHG reduction legislation could reduce U.S. GHG emissions
from the reference case by about one-quarter by 2030, at a cost of roughly 0.3 to 3.8% of the
business-as-usual Gross Domestic Product (GDP), with half the modeled cases at 1% of GDP or
less. Technically and politically, though, an “efficiently designed” program may not be realistic. 21
CRS analysis (Parker and Yacobucci) found from various studies that the uncertainties about the
future reference (“business-as-usual”) cases for incomes per capita were greater than impact on
them by the GHG mitigation proposed by S. 2191 (now S. 3036), the “Lieberman-Warner” bill,
which was reported out of the Senate Committee on Environment and Public Works in 2007 and
has proceeded to consideration by the Senate.
Beliefs about the effectiveness of measures in S. 2191 (S. 3036) to stimulate technological
advance are an important difference among several cost analyses of the bill. Parker and Yacobucci
In its analysis, [Clean Air Task Force] CATF expresses confidence in S. 2191’s various
technology and efficiency provisions and models the bill assuming EIA’s Best Available
Technology (BAT) case, banking, and offsets. In contrast, [the American Council for Capital
Formation/National Association of Manufacturers]ACCF/NAM states that it is “unlikely” that
technology, new energy sources, and market mechanisms (e.g., carbon offsets, banking) will be
sufficiently available to achieve S. 2191’s emission targets. Accordingly, ACCF/NAM’s
assumptions differ substantially from CATF’s and other studies by excluding banking,
significantly capping the availability of various technologies, and assuming higher construction
This difference was among the main reasons that the CATF produced a cost estimate at -0.9% (a
reduction) of Gross Domestic Product per capita in 2030, compared to the ACCF/NAM’s -2.6 to 22
Regarding the effects of S. 2191 (S. 3036) on international trade and the possible movement
abroad of manufacturing (and its emissions, termed “leakage”), the Environmental Protection
Agency provided the only analysis to date: it found no “leakage” if currently developing countries
were to undertake action to maintain their 2015 GHG emission levels beginning in 2025, and to
return their GHG emissions to 2000 levels by 2050. In a worst case scenario, EPA’s analysis of a
no-international-actions-to-2050 scenario projected that developing countries’ projected GHG
emissions would be about 1% higher, equivalent to U.S. emission leakage rates of approximately
21 See CRS Report RL34489, Climate Change: Costs and Benefits of S. 2191/S. 3036, by Larry Parker and Brent D.
22 Ibid, p. 29. Reduction is relative to the same model’s reference case baseline for 2030.
11% in 2030 and 8% in 2050.23 U.S. exports were projected to decline, but imports might increase
or decrease, depending on assumptions.
The Intergovernmental Panel on Climate Change (IPCC), in its Fourth Assessment Report (2007),
found that most economic analyses indicate that policies aiming to stabilize GHG concentrations
in the atmosphere at 590 to 710 parts per million (ppm) of CO2-equivalent could incur small
aggregate costs—or possibly some gains—to economic growth. Achieving the lowest
concentrations analyzed (e.g., 450 ppm) could dampen growth, with 90% of the studies indicating
costs less than 3% of cumulative Gross World Product projected for 2010 to 2030, or less than
0.12 percentage points of the average annual growth rate. While the IPCC represents the
consensus of a wide range of experts and governments, some other experts question its findings
Policy choices would determine how the costs, or changes in growth, would be distributed across
and within regions internationally. In addition, adaptation efforts are considered necessary
because of climate changes occurring now and likely in the future that are attributed to past GHG
emissions. Though adaptation costs typically are not factored adequately into economic analyses,
the effects on economies and non-market processes of climate change policies will reflect both
the costs of mitigation, the costs of adaptation, and residual damages or benefits.
Many people implicitly wish to compare the benefits of proposed action24 with the costs of that
action; however, data and appropriate tools are inadequate to compare reliably and quantitatively
the benefits and costs of abating climate change. Benefits analysis has received relatively little
attention in the United States, with most analyses coming from other countries. A number of
studies have attempted to estimate the benefits of mitigating GHG emissions, with a wide range
of partial estimates. More rare are the few studies that integrate both mitigation and impacts of
climate change, though the likely interaction between them is well recognized in the research 25
No studies of benefits are comprehensive: all omit some sectors and types of impacts; all face
challenges in quantifying and monetizing non-market effects; all require applying assumed
(typically monetary) values to disparate nations and people potentially affected; and most do not
23 EPA, EPA Analysis of the Lieberman-Warner Climate Security Act of 2008: S. 2191 in 110th Congress (March 14,
2008) p. 84.
24 The benefits of policies to reduce climate change are not the same as the damages that could be caused by climate
changes without the policy. In particular, some amount of climate change will occur no matter how quickly policies
strive to reduce emissions; this would make benefits smaller than the future costs of climate change. In addition, there
may be co-benefits or secondary costs of policies that may increase or decrease benefits of a policy.
25 For example, climate change is expected to alter vegetation patterns, the transition of which would affect efforts to
sequester carbon in soils and vegetation. Or, it may reduce demand for heating, potentially reducing benefits of
improving heating efficiency.
address “multiplier effects”26 or variability and uncertainties in their methods. Further, the most
commonly used metric of impacts is change in Gross Domestic Product or Gross World Product,
although these are poor measures of the well-being of people and the world’s natural systems.
Moreover, the capability does not exist to assess all the nuanced and interacting ramifications of a
changing climate. For example, although adverse climate change in many developing countries
could exacerbate political instabilities and increase threats to U.S. security, calculating the
magnitude and timing of added security risks—and the value of lessening them—would be
guesswork. Furthermore, because many projections place the Earth’s future climate into a range
never experienced by human civilizations, observational evidence from the past is helpful but
inherently not analogous to what may evolve; much will remain unknown no matter how much is
invested in research. On the other hand, many flaws in current benefits analyses could be
overcome with more study and improved analysis, and explicit methods for taking uncertainties
into account (with value judgments) for more robust decision-making.
Almost all economists conclude that, while climate change in the near-term could have globally
aggregated net benefits, further climate change would tend to decrease benefits while damages
would increase. In net, they conclude that long-term climate change is likely to damage economic
growth worldwide and incur cumulative costs that could reach many trillions of dollars.
The Costs of Climate Change Are Not the Same as the Benefits of Mitigation
Most studies estimate the potential costs of climate change, not the benefits—the costs of climate
change that could be avoided by specific mitigation policies. However, mitigation policies are unlikely
to avoid all future, GHG-induced climate change or its impacts. Therefore, the benefits of mitigation
policies (i.e. the avoided impact costs) are likely to be less than the total costs of climate change
Benefits of Mitigation + Unavoided Damages = Total Costs of Climate Change
(This simplification ignores, however, that policies might be designed to garner benefits to other social
objectives, such as improving energy security or avoiding deaths from air pollution.) Thus, attention to
this difference may be warranted by people who wish to compare the costs and benefits of a proposed
Nonetheless, most economists who have modeled both mitigation costs and its benefits conclude
that well designed policies could have modest costs and save trillions of dollars over the coming
century. Most economists would agree that the long-term costs of climate change merit some
degree of near-term and mandatory action to reduce GHG. However, beyond those general points,
there is a wide range of views and controversies.
26 “Multiplier effects” here refers to the secondary and follow-on impacts of climate changes, as computable general
equilibrium (CGE) models do for mitigation cost analyses.
The most comprehensive and rigorous review of the benefits of mitigating climate change is the 27
“Stern Report,” commissioned by the Government of the United Kingdom and released in 2006.
The Stern Report has been strongly criticized by some notable economists, due to differences of
views over methodological challenges, as well as to allegations of selectiveness of studies used.
Other equally reputable economists have indicated their acceptance of the methods and/or
provided analysis contending that the Stern estimates of possible climate change costs may be
low. In brief, the Stern Report underscores that climate change policy must involve value-laden 28
choices by public decision-makers. In support of this, the Stern Report laid out a hierarchy of
different valuation choices, leading to estimates of climate change damages ranging from 0 to
Several studies of the potential costs (or benefits) to the United States of projected GHG-induced
climate change have been conducted, though none is comprehensive and all suffer from the
general challenges of applying economic and ethical methods to the issue. A recent review of
economic studies of impacts in the United States by the University of Maryland’s Center for
Integrative Environmental Research stated the following “Five Key Lessons,” which reflect
commonly held views among climate impacts researchers:
• Economic impacts of climate change will occur throughout the country.
• Economic impacts will be unevenly distributed across regions and within the
economy and society.
• Negative climate impacts will outweigh benefits for most sectors that provide
essential goods and services to society.
• Climate change impacts will place immense strains on public sector budgets.
• Secondary effects of climate impacts can include higher prices, reduced income 29
and job losses.
The report cites a variety of regional studies that project costs of climate change impacts to st
localities or sectors in the tens of millions to hundreds of billions of dollars through the 21
Century. The report also concludes, “[t]here is, however, a lack of research that quantifies and
compares these impacts, and a deficiency in using what is known about climate impacts to guide
adaptation actions from the national level down to the local level. Thus, the full economic costs
will likely be much higher than what is reported currently.”
27 Stern, Nicholas. The Economics of Climate Change. Stern Review Report. London: HM Treasury, October 30, 2006.
http://www.hm-treasu r y.gov.uk/ independ en t_ reviews/ stern_review_ economics_ cli mate_ ch an ge/
28 Examples of choices more appropriately addressed by policy-makers than researchers include how to value impacts
on current versus future generations; whether to give weight to impacts on particular populations, such as low-income
populations or children; whether certain adverse impacts are not acceptable and might lead to maximum allowable
degrees of change; etc.
29 Ruth, Mathias, Dana Coehlo, and Daria Karetnikov. The US Economic Impacts of Climate Change and the Costs of
Inaction. Center for Integrative Environmental Research, University of Maryland, October 2007.
Few studies have attempted to aggregate the economic costs of climate change to the United
States across sectors in the absence of effective mitigation policies, and all of those studies
qualify their results by recognizing the uncertainty and methodological questions. One such study, 30
by economist Dale Jorgenson and others, which examined a wide range of possible projections
of climate change, though only market effects, concluded:
Based on the market sectors and range of impacts considered for this analysis, projected
climate change has the potential to impose considerable costs or produce temporary benefits st
for the U.S. economy over the 21 century, depending on the extent to which pessimistic or
optimistic outcomes prevail. Under pessimistic assumptions, real U.S. GDP in the low
climate change scenario is 0.6 percent lower in 2100 relative to a baseline that assumes no
change in climate; in the high climate change scenario, the predicted reduction in real GDP is
1.9 percent [lower in 2100]. Under the additional “high and drier” climate scenario, however,
real GDP is reduced more dramatically—by as much as 3.0 percent by 2100 relative to
baseline conditions. Furthermore, under pessimistic assumptions negative impacts on GDP
grow progressively larger over time, regardless of the climate scenario. In contrast, under
optimistic assumptions real U.S. GDP by 2100 is 0.7 to 1.0 percent higher than baseline
conditions across the low, central and high climate scenarios, but these benefits eventually
diminish over time. Nevertheless, to the extent that responses in certain key sectors conform
to the optimistic scenarios, there is a distinct possibility that some degree of climate change st
can provide modest overall benefits to the U.S. economy during the 21 century.
Many studies underscore a key point: the impacts of climate change on people and on
ecosystems, and the benefits or damages, will depend heavily on the ability to adapt by different
populations and systems, and the effectiveness of actions to adapt. Concerns about climate
change, consequently, often emphasize the vulnerabilities of populations with low financial and
technical resources, or that may be otherwise constrained in their adaptations (e.g., native cultures
that are dependent on, and value, a habitat that may be eliminated by climate change, as in some
Adding to the benefits of GHG mitigation would be many measures that would help to avoid
climate change and would serve other national goals, such as improving energy security, abating
the world food crisis, reducing pollution, and conserving critical natural resources and
biodiversity. For example, actions to suppress demand for petroleum would help suppress global
oil prices and total U.S. expenditures for energy. Such “co-benefits” of GHG mitigation would
boost the value of abating climate change.
Offsetting the benefits would also be some trade-offs with other national or local goals, although
many trade-offs could be minimized or eliminated through policy design that is mindful of the
relationships among issues. For example, incentives to reduce GHG emissions by increasing
biofuel use could raise food prices (as in the present situation) and reduce food security, or could
enhance food security by selectively encouraging feedstocks that do not compete for agricultural
land and food products, and by improving agricultural efficiencies.
30 Jorgenson, Dale W, Richard J. Goettle, Brian H. Hurd, and Joel B. Smith. U.S. Market Consequences of Climate
Change. Prepared for the Pew Center on Global Climate Change. Arlington, VA, April 2004.
Experts agree that climate change, in the near term, will create both those who gain (e.g.,
agricultural producers in cool to moderate and wet climates) and those who will suffer (e.g.,
agricultural producers in hot and dry climates). Some people are likely to experience slow and
moderate changes, while others are likely to experience such radical changes in their climate that
their current way of life—and possibly their locales—becomes unsustainable. Some people will
have the resources to migrate and adapt successfully—even profit from new opportunities that
will emerge—while others could lose livelihoods or lives. The same would be true also with
policies to mitigate GHG emissions (e.g., the potential effects on coal producers).
Embodied in any debate over climate change and what to do about it are the potential inequities
of policies to mitigate or not to mitigate climate change. Despite these distributional hazards
being fundamental to the debate, they are among the least researched of all climate change issues.
The stage for upcoming policy deliberations is set by the existing frameworks internationally and
domestically. The developing countries now contribute the major, and most rapidly increasing, 31
share of GHG emissions globally. Effectively abating climate change would require GHG
reductions in all major countries. Additionally, some industries fear adverse trade impacts if their
competitors in other countries do not have similar requirements to reduce GHG emissions. In the
United States, these issues, along with concerns about U.S. leadership and sovereignty, figure into
the debate over long-term GHG concentration targets and near-term emission controls.
Legislative actions would be superimposed on existing federal programs and a patchwork of state
and local policies to reduce a part of U.S. GHG emissions. One legislative challenge would be to
create a coherent strategy from the current components.
Internationally, 192 countries—including the United States—joined the 1992 United Nations
Framework Convention on Climate Change (UNFCCC) to stabilize “greenhouse gas
concentrations in the atmosphere at a level that would prevent dangerous anthropogenic
interference with the climate system” (Art. 2). Although science can help to identify the degree of
“interference” and implications of climate changes at different concentration levels or degrees of
temperature change, most scientists agree that the determination of “dangerous” is a political
decision, not one that can be objectively decided by scientists.
31 Calculated from estimates for 2005 in International Energy Agency, CO2 Emissions from Fuel Combustion 1971-
2005, 2007, online database. Data extracted May 30, 2008.
32 SeeCRS Report RL33826, Climate Change: The Kyoto Protocol, Bali "Action Plan," and International Actions, by
Susan R. Fletcher and Larry Parker.
Agreeing that mandatory GHG reductions would be necessary to avoid “dangerous anthropogenic
interference,” most countries in 1997 signed the Kyoto Protocol. It sets legally binding GHG
targets—an average 5% reduction below 1990 emissions levels during the period 2008-2012—for
38 industrialized countries. The Kyoto Protocol has been ratified by 175 countries, including 37
of the 38 industrialized countries.
The United States signed the Kyoto Protocol in 2007. However, President Bush in 2001 33
announced that the United States would not become a Party to the Kyoto Protocol. His principal
arguments against it were (1) uncertainty of the science; (2) potentially high cost of GHG
abatement programs; and (3) lack of GHG abatement commitments from developing countries.
President Bush announced a U.S. policy to reduce the “greenhouse gas intensity” (ratio of
emissions to economic output) of the U.S. economy by 18% from 2002 to 2012. This target
represented up to a four percentage point increase above previous trends.
Both the UNFCCC and the Kyoto Protocol operate under the principal of “common but
differentiated responsibilities.” Effective efforts would need to be made by all large emitting
nations in order to stabilize global GHG concentrations. Nations’ views diverge concerning the
Kyoto Protocol and “post-Kyoto” steps (post-2012): industrialized nations fear harm to their
economic competitiveness if developing countries do not also limit emissions; developing
nations, a growing source of emissions, typically argue that industrialized countries have emitted
most GHG historically and can better afford to reduce emissions first and deeper. They argue that
low-income nations must give first priority to alleviating poverty. The UNFCCC embodies the
principle of “common but differentiated responsibilities” to reflect the agreement that each nation
must contribute to addressing climate change, but that its priorities and the magnitude of its
efforts should differ according to national circumstances. The differences of views concerning
appropriate common responsibilities and differentiation are at the core of the international
To negotiate the next round of international commitments, Parties to the UNFCCC agreed to the
“Bali Action Plan” in December 2007. The Bali Action Plan established an Ad Hoc Working
Group on Long-term Cooperative Action under the UNFCCC to complete and present its work to th
the 15 meeting of the Parties, in November-December 2009. The first session of the Ad Hoc
Working Group met in April 2008. In parallel to the UNFCCC process, President Bush
announced in May 2007 that the United States would convene a series of meetings of major
economies (MEM) to develop a post-2012 framework to address climate change. To the “MEM”
process, President Bush proposed a multilateral ‘clean technology fund’ totaling $3 billion to
stimulate international investments in clean energy and adaptations to climate change. His
33 Neither President Clinton nor President Bush sent the Kyoto Protocol to the Senate for ratification.
FY2009 budget requests a first U.S. payment of $400 million to this fund. Japan has proposed a
similar multilateral fund of $10 billion.
On April 16, 2008, President George W. Bush announced a new national goal for climate 34
policy—to halt increases in U.S. emissions of GHG by 2025. Emissions would begin to decline 35
thereafter “so long as technology continues to advance.” According to the President, the United
States would achieve this goal by regulatory measures and market incentives to encourage use of
clean technologies. President Bush said that the United States would be willing to include this
plan in a future international agreement as long as all other major emitting economies also
include their plans in the agreement. Some stakeholders have criticized the new Bush policy for
proposing any cap on future emissions, while others have criticized it as too little, too late.
Current federal climate change policies provide incentives, but few requirements, to reduce GHG
emissions. For example, a number of tax incentives are in place to encourage purchase of more
efficient vehicles and to make efficiency improvements to buildings. Other incentives induce
agricultural producers to enhance soil carbon. A suite of federal programs provides information,
technical assistance and nominal awards to businesses, universities and other consumers to
quantify and reduce their GHG emissions; such programs generally are intended to encourage
emission reductions that are already economical but that do not occur because of market
inefficiencies. Some GHG reductions are also achieved by existing regulations governing the
energy efficiency of vehicles and appliances, methane emissions from landfills, and other
controls. Again, these regulations have been put in place for reasons other than abating climate
change. Large programs are devoted to developing new technologies that would be necessary to
reduce GHG emissions below current levels. Many experts contend that voluntary efforts (such as
the U.S. Climate Leaders Program), research on technologies, and existing regulatory and tax
incentives cannot achieve the GHG reductions necessary to avoid “dangerous” climate change.
The United States and the European Union have proposed, for the Doha Round of the World
Trade Organization (WTO) negotiations, a New Environmental Goods and Services Agreement
(EGSA) to eliminate tariff and non-tariff barriers to environmental technologies and services. The
proposal aims particularly at lowering the cost and increasing access to “clean energy” 36
34 This is not the first quantitative GHG goal set for U.S. climate change policy: on April 21, 1993, President William J.
Clinton “announce[d] our nation’s commitment to reducing our emissions of greenhouse gases to their 1990 levels by
the year 2000,” consistent with the Article 4 aim of the UNFCCC. The challenge in meeting that aim with voluntary
measures only led to agreement on mandatory GHG reduction obligations in the Kyoto Protocol.
35 White House. Fact Sheet: Taking Additional Action to Confront Climate Change. Press Release, April 16, 2008.
36 U.S. Mission to the European Union. “U.S., EU Announce New Climate Initiatives for WTO.”
Of the $6.4 billion in U.S. federal funding in FY2008 for climate change activities, almost all is
for scientific and technological research and development. In addition, tax incentives that could
help to reduce GHG emissions are forecast to reduce federal revenues by about $1.5 billion in
FY2008. Funding for regulatory, voluntary and public education programs is a few percent of the
The Congress faces increasing pressure from the public to address the risks of climate change;
avoid creating a patchwork of state and local requirements; provide certainty for investors in U.S.
systems; and position the United States for competitiveness in the growing world markets for th
“clean” energy. In the 110 Congress, Members have introduced numerous bills to address 38
various aspects of climate change. These bills cover a wide spectrum, ranging from climate
change research to GHG emissions cap-and-trade programs or emissions taxes. Additional bills
focus on GHG reporting or registration. Several bills would authorize planning and carrying out
of adaptations to expected climate change in specific sectors, nation-wide or internationally.
Annual appropriations for climate change programs directly affect the federal level of effort for
As of the date of this report, the 110th Congress has enacted two broad pieces of legislation—an
omnibus energy bill (P.L. 110-140) and a comprehensive appropriations act (P.L. 110-161)—that
include climate change provisions. Both statutes increase climate change research efforts, and the
energy act requires improvement in vehicle fuel economies, as well as other provisions that
would reduce (or sometimes increase) GHG emissions. P.L. 110-161 directs the Environmental
Protection Agency (EPA) to develop regulations that establish a mandatory GHG reporting
program that applies “above appropriate thresholds in all sectors of the economy.” In addition, in
December 2007, the Senate Committee on Environment and Public Works approved a bill, S.
2191 (now S. 3036)—the “Lieberman-Warner” bill, that would require “economy-wide” GHG
reductions. This bill is scheduled to go to the Senate for consideration in June 2008.
In the absence of a federal regulatory framework to address U.S. GHG emission reductions, a
majority of states have established formal GHG mitigation policies, including targets for future
reductions. California, Hawaii, and New Jersey have passed laws establishing mandatory,
economy-wide GHG emission limits, while a number of additional states have set controls on
CO2 emissions from particular sources. In several regions, including the Northeast, the Midwest
and the West, states are working together to create regional schemes to cap GHG emissions and
allow trading of emissions permits across borders. The increasingly complicated mosaic of state,
37 See CRS Report RL33817, Climate Change: Federal Funding and Tax Incentives, by Jane A. Leggett.
38 See CRS Report RL34067, Climate Change Legislation in the 110th Congress, by Jonathan L. Ramseur and Brent D.
39 See CRS Report RL33812, Climate Change: Action by States to Address Greenhouse Gas Emissions, by Jonathan L.
local, and regional GHG initiatives may place growing pressure on the federal government to
establish a coherent national regulatory strategy to address GHG emissions.
A proliferation over the past five years of litigation relating to climate change may also press the
federal government toward actions to reduce GHG emissions. For example, the Supreme Court
ruled in 2007 that the EPA must consider regulating CO2 and other GHG emitted from motor 40
vehicles as pollutants under the Clean Air Act. Further litigation has been pursued, to challenge
the Executive Branch to action, using the Endangered Species Act, the Energy Policy and
Conservation Act and the Outer Continental Shelf Lands Act. A few international-law claims have 41
been filed against the United States as well. However,
[w]hether these new paths will yield results, only time will tell. It is clear, however, that if
there is to be a government response to climate change at all, a solution from the political
branches is more likely to be comprehensive and fully reflective of societal priorities than the 42
typically narrowly targeted results of litigation.
With growing consensus on climate change science and pressures from interest groups, many
legislators are deliberating whether and how to address climate change. Some may prefer to
continue to employ the existing set of research and voluntary programs. Available for others who
are considering additional actions is an assortment of policy tools that they see as stimulating
further reductions of GHG emissions and reducing risks to the economy, specific populations, and
natural systems. Part Three of this report identifies a variety of policy tools potentially affecting
• regulatory, including market-based, tools to reduce GHG;
• distribution of potential revenues from GHG programs;
• non-regulatory tools that help markets work more efficiently;
• tools to stimulate technological change;
• options to ease the economic transition to a lower GHG economy;
• instruments to encourage international actions; and
• tools to stimulate adaptation to climate change.
The following sections summarize some potentially applicable instruments in each of these
categories that have been proposed or used in the past. Many of these tools are complementary,
and proponents often contend that they would produce results more efficiently when carefully
matched than any one alone.
40 Massachusetts v. EPA, 127 S. Ct. 1438 (2007).
41 See CRS Report RL32764, Climate Change Litigation: A Growing Phenomenon, by Robert Meltz.
42 Ibid., p.35.
Most experts agree that the most economically efficient way to reduce GHG emissions
substantially is to put a price on emissions that reflects the costs (or risks) of those emissions to
others. Putting a price on GHG emissions can be done with traditional source-by-source
regulation, and/or with “market mechanisms.”
From the earliest decades of air pollution controls, emission reductions have been achieved by
setting emission performance standards on each source of pollution, or requiring that sources use
a particular type of technology, such as the “best available control technology”; practice has
successfully included “technology-forcing” regulation, as well, that sets future performance
standards well beyond contemporaneously achievable levels. Regulatory controls have proven to
be effective through decades of experience, though studies have demonstrated that the compliance
costs might have been reduced if strategies had given priority to cost-effectiveness and flexibility.
Even when regulators have been allowed by law to consider costs in setting emission regulations,
they have had additional factors to consider and often have had weak information about the costs
of technology for each individual source. Also, regulations can be difficult to adjust as
circumstances change. Although in some circumstances source-by-source regulation may be most 43
effective and efficient, it often cannot achieve, by itself, a desired emission reduction target at
the least possible cost.
Regulatory approaches that utilize aspects of commodity markets can achieve, in some cases, th
similar emission reductions but at lower overall cost. Bills introduced in the 110 Congress have
proposed such “market mechanisms” to reduce GHG emissions because, for some sources, they
can increase the efficiency of source-by-source regulation by allowing the least costly reductions
first. Market mechanisms begin with regulations to reduce emissions, but then may allow
flexibility in who makes the emission reduction, when the reductions are made, and where the
emission reductions occur (outside of the regulated sources, or even internationally).
Two principal types of market mechanisms pertinent to GHG reductions are GHG or carbon
taxes, or cap-and-trade systems. The key contrast between these two mechanisms is that:
• GHG taxes would provide certainty about the prices paid by sources, but
uncertainty concerning how much GHG would be reduced;
• conversely, cap-and-trade systems provide certainty in how much GHG would be
reduced, but not regarding the prices paid by sources.
Both emission fees and cap-and-trade systems potentially generate revenues—potentially in the
billions of dollars annually. Issues regarding what to do with revenues will be introduced
following brief discussion of some potentially contentious design issues.
43 In some instances, performance standards can be very efficient, for example, when transaction costs are high
compared to the incremental cost of control.
Fees would be charged to a source of emissions according to its total emissions. Theoretically, a
source would reduce its emissions down to the level where it is no longer cheaper to make the
reductions (per ton) than to pay the tax (per ton). There could be many variations on this basic
model, including charging fees only on emissions above rates designated by source types. Aside
from possible tax exemptions, emission fees would not allow flexibility in who or where GHG
reductions would occur. A system might be designed to allow flexibility in when GHG reductions
are made, though the principal flexibility would be the source’s decision whether to make the
reductions or pay the taxes. Many economists believe that emission fees or taxes would be the
most economically efficient way to reduce emissions, though this might depend on micro-
economic factors, and it would not guarantee an overall level of effectiveness for the program.
Some people object to paying “taxes” in general, even if it is to correct an acknowledged
In a cap-and-trade program, the regulator sets an overall cap on emissions, and must allocate
responsibility for achieving the cap to individual sources, frequently termed “allowances” to emit.
In cap-and-trade programs, the trade component allows entities to sell their unneeded emission
“allowances,” while emission sources that emit more than their allowances may comply by 44
reducing their emissions and/or buying additional allowances. Cap-and-trade programs allow
flexibility in who makes the required emission reductions. Within cap-and-trade systems, are two
additional types of flexibility:
• International credits or offsets: Flexibility in where reductions occur—in the
United States or internationally—can also minimize costs, although some
questions arise about enforceability, loss of program effectiveness, and financial
flows. Allowing international credits or offsets, to the degree that GHG could be
reduced reliably at lower cost in other countries, which could help reduce costs of
complying with U.S. GHG requirements.
• Banking and borrowing: When flexibility could allow entities to save or “bank”
unneeded allowances until they need them, or to “borrow” against their future
allocations of allowances (with a charge for borrowing). Banking and borrowing
could apply to source-by-source regulation as well as to cap-and-trade programs.
Although there are numerous questions to resolve in designing a cap-and-trade program,45 such as
the level at which to set the cap, which sources to cover under the cap, whether to allow offsets
from non-covered sources and other countries, etc., this section discusses two: how to allocate the
44 More detailed descriptions of how cap and trade programs may work are discussed in a later section on program
design, and in several CRS reports, including CRS Report RL33799, Climate Change: Design Approaches for a
Greenhouse Gas Reduction Program, by Larry Parker, and CRS Report RL33846, Greenhouse Gas Reduction: Cap-
and-Trade Bills in the 110th Congress, by Larry Parker, Brent D. Yacobucci, and Jonathan L. Ramseur.
GHG reduction requirements, and whether to set a ceiling or floor on the prices a source must pay
for any allowances it wishes to purchase.
Policy-makers would have to decide who would be responsible for reducing GHG emissions—
this determines who pays for the reductions, not who actually makes the reductions. In a cap-and-
trade system, allowances can be:
• given away (e.g. “grandfathered” to existing GHG sources, or given to non-
• sold at a fixed price,
• auctioned, or
• a combination of these techniques.
Allowances are a valuable commodity (because they can be sold). How this valuable commodity
is allocated could potentially transfer billions of dollars of wealth across different groups. This
transfer of wealth (from entities who need to buy allowances, to entities that sell them) could be
many times greater than the economic cost of the GHG reductions. How to allocate allowances is
therefore an important component—and among the most controversial—in the GHG reduction
debate. Giving allowances to particular groups may be a tempting way to increase the
acceptability of a GHG control program, or to improve the “fairness” of the program, but it could
distort incentives and reduce the efficiency of the program. One way (among others) to minimize
the transfer of wealth in a GHG control program would be to sell allowances rather than to give
them away. Sales, including auctions, would increase the efficiency of an overall GHG reduction.
Selling the allowances at a fixed price becomes very much like an emission fee or tax program.
Many proposals would give away some allowances to both sources of emissions and other entities
(e.g. states, other sectors) and would auction some allowances.
GHG allowances under a cap-and-trade program become a market commodity; the prices of most
commodities rise and fall—sometimes with great volatility—as daily, seasonal or annual
conditions vary. Variance would be expected with GHG allowance prices.
Prices could rise above anticipated levels if reducing GHG turns out to be more difficult than
projected, or if speculators bid up prices, or under other conditions. Some people concerned about
the costs of GHG reduction programs advocate setting a ceiling on the maximum price a source
might have to pay for allowances it may need to comply; some have termed this a “safety valve”
on prices. If prices were to exceed a designated level for some period of time, either the
regulatory authority could release additional allowances into the market through an auction, or
sales at a fixed fee. While this would limit the overall cost of the program, it would also limit the
overall GHG reductions ( although these could be “borrowed” from future years), and it would
reduce incentives for technological innovation: The profits that can be reaped when prices spike
is part of the calculation that stimulates some investors to finance technological research.
Other stakeholders argue that, to stimulate technological advance, a floor should be set on the
prices for allowances in the market (i.e., the regulator set a “reserve price” for allowances sold at
auction, or would buy allowances in the market until the prices rise to the minimum acceptable
level). While constraining how little the GHG program may cost, a price floor assures investors
there is a minimum value for the services their technologies could provide.
If emissions are taxed, or allowances are sold to sources at flat fees or by auction, public revenues
could be generated—as much as hundreds of billions of dollars per year (depending on the size of
the tax or the quantity of reductions required). A key policy issue associated with taxes, sales or
auctions is what to do with the revenues. Revenues can be used to:
• offset reductions of other taxes, sometimes called “revenue recycling” (e.g. labor
• rebate to sources to help defray compliance costs of covered sources (e.g.
according to their production levels);
• fund programs (or provisions) that could reduce transition costs, such as worker
retraining and relocation programs, market facilitation programs, technology
development programs, tax credits, loan guarantees, etc.;
• provide payments to address distributional concerns (e.g. tax credits to low-
income consumers); or
• fund programs that may have little to do with reducing GHG emissions but that
garner wider support for the legislation.
As discussed in a later section, how any revenues are used may help to minimize the overall costs
of the GHG reductions, or, conversely, may lead to higher costs.
Even when market mechanisms are used to help control emissions, markets do not work
perfectly; complementary, typically non-regulatory, policies may help to achieve reductions at the
lowest possible costs. Public or targeted information programs can help prepare people for the
changes a GHG control policy may demand, and gain their support for it.
Additionally, technical assistance programs—like several existing federal voluntary programs, 46
such as the Climate Leaders or Energy Star programs—can help consumers and businesses to
make efficient choices. Technical assistance programs may provide, for example, calculation
tools, training, and access to information. Programs may work with equipment suppliers to
commercialize products that are more efficient or emit fewer GHG, as has occurred with, for
example, Energy Star home electronics initiatives, or the Mobile Air Conditioning Climate
Protection Partnership. Most experts agree that such programs work best when targeted to address
specific decision-makers or imperfections in the market, and that the GHG reductions they could
yield by themselves are limited.
46 A number of federal voluntary programs help businesses, other institutions and consumer to identify how they
contribute to GHG emissions and to identify and carry out changes that can lead to GHG reductions and frequently
save money. For more information, see http://yosemite.epa.gov/gw/StatePolicyActions.nsf/webpages/
Perceived risks can sometimes make consumers and investors reticent to make changes or invest
in new technologies. Risk-sharing policy tools can include loan guarantees, insurance, or tax
incentives. Public information and education campaigns are additional tools that can support a
policy’s acceptability and effectiveness.
Achieving deep GHG reductions from projected levels—necessary to avoid most projected
climate change—would require extraordinary changes in how energy is used and supplied over
time. The cost of reducing GHG emissions would depend critically on development and
deployment of improved technologies that can reduce emissions at lower costs than current
technologies. While public policies clearly have led to major technological advances in other
fields (e.g. developing nuclear energy, putting a man on the moon), the link between policy tools
and the technological advance that could be expected is unpredictable.
Policy tools can act on the demand for new technologies, or on the supply. Two types of policy
tools act primarily to stimulate demand for new technologies:
• “Technology-forcing” regulations47 have effectively stimulated demand for better
(and more cost-effective) technologies in the past. “...[T]echnology-forcing
policies respond to the reality that the world is not static and that policy itself can 48
create and shape the options society faces in meeting its needs.” However,
economists prefer price incentives to stimulate technological change, because it
decentralizes decision-making to consumers and suppliers, and is arguably more
• Tax incentives can reduce the price to purchasers of certain technologies. The
Energy Policy Act of 2005 (P.L. 109-58 ), for example, extended numerous tax
credits to individuals and businesses to make investments in energy efficiency or
renewable energy generation that meet certain criteria, in order to accelerate
Other policy tools primarily act on the supply of technologies—increasing incentives for
technology suppliers to conduct research and development (R&D) and to commercialize more
• Subsidies to research and develop new or improved technologies is a common
tool of federal policy, including current approaches to mitigating climate change.
Federal appropriations of billions of dollars have been enacted in recent years to
stimulate more efficient energy technologies; renewable, nuclear, and “clean
coal” technologies; and approaches like alternatives to gasoline or diesel fuel for
vehicles. These subsidies can take the form of tax credits for R&D, cost-sharing
grants or contracts, direct investments, loan guarantees and others.
47 “Where a regulator mandates a standard that cannot be met with existing technology,” according to Gerard, David,
and Lester Lave. “Experiments in Technology Forcing: Comparing the Regulatory Processes of US Automobile Safety
and Emissions Regulations.” International Journal of Technology, Policy and Management 7 (2007): 1-14.
48 Leone, Robert. “Technology-Forcing Public Policies and the Automobile.” In Essays in Transportation Economics
and Policy. Edited by J. Gomez-Ibanez, W. Tye, and C. Winston. Washington, DC: Brookings Institution 1999. pp.
• Technology awards or prizes are sometimes offered to innovators that develop
advanced technologies that meet specified criteria.
• Government procurement policies can drive technological development forward,
by setting challenging standards for performance and guaranteeing purchase of
that technology at a particular (attractive) price, or by purchasing a less-emitting
technology even if it is not the lowest cost alternative. Both types of procurement
policies have been used by the federal government to advance technologies that
emit fewer GHG than more conventional technologies.
• “Manhattan Project”-like federal research has been proposed by some experts,
who argue that a focused cadre of researchers, with sufficient resources and
allowed to pursue high-risk, high-payoff projects could facilitate technological
“breakthroughs” that could facilitate radical change in energy systems.
Some policy tools that may affect the advance of technologies could be indirect. For example,
incentives to ensure a sufficient supply from universities of well trained scientists and engineers
in GHG mitigation-related fields could be a component of promoting technological advance.
Some policy choices to address one problem may have ancillary effects on technology incentives.
For example, if a GHG cap-and-trade program were to set a “safety valve” to limit maximum
costs—by setting a ceiling on the maximum price of GHG allowances—it would tend to
discourage investors who might take technology development risks in order to capture the profits
of high prices or of temporary price-spikes that often occur in markets. Price floors, on the other
hand, may help reduce the risks to technology investors by making certain the minimum value the
investment may have.
A major component of costs to mitigate GHG emissions results because the U.S. economy has
optimized its infrastructure to depend on fossil fuels, particularly coal, and on private, petroleum-
dependent vehicles for transportation. This has been efficient (disregarding existing subsidies),
without factoring in the environmental, energy security and other “external” costs. Several policy
mechanisms can help to ease the transition of the current economy to one optimized around low-
• timing the total required GHG reductions to coincide with normal retirements of 49
equipment and infrastructure and when new investments may be made;
• trading, banking and borrowing of allowances allow sources to manage the
timing of their reductions at least cost;
49 However, some experts suggest that much capital can be maintained to last for decades longer than its nominal
“lifetime” and that the benefits of timing regulations to coincide with capital turnover may frequently be over-stated.
See, for example, Lempert, Robert J., Stephen W. Popper, Susan A. Resetar, and Stuart L. Hart. Capital Cycles and the
Timing of Climate Change. Arlington, VA: Prepared for the Pew Center on Global Climate Change, October 2002.
• market facilitation tools, described above, can help sources make optimal
decisions, including information campaigns that help sources anticipate the
• investment in appropriate infrastructure (important also for state, local and
private entities) that enables deployment of emerging technologies; and
• regulatory and permitting regimes that are adequately prepared for new
technologies in new locations (e.g. in permitting carbon capture and storage
technologies, or resolving “solar rights” issues).
In addition, the private sector is concerned about the possible international competitiveness and
trade impacts of GHG reductions in the United States. Some policy tools that could be applied,
although some could encounter potential challenges under the World Trade Organization (WTO)
• border tax adjustments that would raise the prices of imports from countries
without GHG controls comparable to those of the United States;
• “international reserve” allowances that importers of certain goods must purchase
(raising the cost of imports) if the country of origin does not apply GHG controls
comparable to those of the United States;
• giving, over some period, allowances or revenues from sales of allowances to
affected industries in order to facilitate adjustment;
• in the process of crafting domestic policies, negotiating with potentially affected
WTO Members to seeks ways to avoid imposing restrictive import measures;
• working within the WTO to change or clarify rules to permit the imposition of
import restrictions by countries adopting trade-vulnerable GHG control
• working multilaterally to have GHG emission controls applied equitably to
sources internationally (see discussion below) and to avoid WTO challenges.
The design of competitiveness-oriented policy tools would require caution to avoid challenge
under WTO as unfair trade practices.
The effectiveness of U.S. policies to address climate change will depend on the collaboration of
almost all other countries, especially the largest emitters. Some of the large emitters, such as
Japan and nations of the European Union, already have committed to reducing their GHG
emissions below year 1990 levels and have proposed further reductions beyond the current Kyoto
Protocol (discussed in a later section). However, the United States, China and other large
developing country emitters have not committed to quantified GHG reductions, and the position
of Russia beyond 2012 remains a question. The United States can use a number of policy tools in
order to encourage effective, global GHG reductions:
• Leadership and relationship-building;
• Strategic policy leverage (including quid pro quo);
• Capacity building and other technical assistance;
• Financial assistance;
• Agreement on standards for international investment;
• Contributions of research and technological developments.
There are additional options, and a multitude of variants in designing each of these policy tools.
While most of this section, and this report, emphasizes options to mitigate GHG emissions and
projected climate change, a growing set of legislative proposals aims to promote understanding of
climate change impacts, and to stimulate effective adaptation to climate change. Included in the
policy toolbox to promote efficient adaptation to climate change are, to name a few:
• research to improve characterization of future climate change,50 its variability,
and its potential implications for different sectors and ecosystems;
• public information, both broad and targeted to specific risks, including access to
robust characterization of future climate conditions and associated risks;
• programs to develop practical tools to assist decision-makers to understand the
implications of climate change for their areas of operation (e.g. water
management, infrastructure engineering, disease vector prediction, etc.);
• financial or regulatory incentives to reduce risks (e.g., to discourage construction
in vulnerable flood plains; to encourage insurers to include climate change risks
in their premium schedules; etc.)
• improved emergency planning to reduce risks and respond to extreme weather
events (e.g. droughts, tornadoes); etc.
• acquisition of key assets, such as easements in coastal zones or lands along
wildlife migratory routes, that may be valuable for long-term adaptation.
Policy tools to encourage private and public sector adaptations, like the research to support them,
are relatively undeveloped compared to work on GHG mitigation.
With the current flurry of activity to address GHG emissions at local, state and international th
levels, as well as the introduction of numerous GHG reduction bills in the 110 Congress, it
seems likely that Members of Congress will have to decide whether the time is appropriate to
legislate a climate strategy, and what forms legislation should take. In considering the
alternatives, policy-makers may wish to answer for themselves such questions as:
50 Current scientific uncertainty is very wide not just on human-induced climate change, but also on underlying natural
variability. What humans and ecosystems will experience, and may need to adapt to, will be the combination of both
influences on climate.
• whether the risks of human-induced climate change are sufficiently certain to call
for policy actions to mitigate the causes and/or adapt to perceived inevitable
• how a domestic policy package can be designed that balances the risks of climate
change with costs that are accepted as reasonable and fairly distributed;
• how domestic policy would interact with international negotiations to avoid
unacceptable climate risks while distributing the effort equitably among countries
• when and how to promote appropriate adaptation by private and public decision-
makers to the uncertain climate ahead.
Reports for Members of Congress, providing more detailed information on topics introduced in
this report, can be found on the CRS website, on the Climate Change Current Legislative Issues
page: http://apps.crs.gov/cli/cli.aspx?PRDS_CLI_ITEM_ID=2645&from=3&fromId=2522 or by
Jane A. Leggett
Specialist in Energy and Environmental Policy