 Today we are really honored to have Professor Charles Costa with us. He is a senior fellow at the Stanford Institute for Economics Policy Research at the Precourt Institute for Energy and at the Woods Institute for the Environment and Professor by Courtesy of Economics. Today he is going to talk to us about climate and energy and economic perspective. So Professor Charles Costa, please take it away by sharing your screen. Terrific. Terrific to be here with you all and we're on a tight schedule and particularly tight because I'm not sure what the schedule is so we'll make some progress here and hopefully the whole point is really to stir imagination and ideas rather than to convey much much of much of facts and substance so let's let's go through superficially some dimensions of climate economics so I'm sort of assuming everybody knows at least the rudimentary science natural science of climate change we're not going to deal with that basically it's going to boil down to carbon dioxide even though it's that's really just one of several greenhouse gases but as a shorthand I'll often refer to either greenhouse gases or CO2 so there are two big questions in economic climate change and I should say if you have any comments or questions use the chat button I will pause in about 10-15 minutes to see if there are anything clarifications that are needed Jenny is going to be monitoring monitoring that so feel free so that like I was saying there are really two big questions in the economics of climate change how much to reduce and how to accomplish that so kind of kind of logical how much to reduce really just means how much CO2 the society not not us as individuals but society want in the atmosphere and taking taking into account the fact that society is a very very heterogeneous concept we look at Trump versus Biden you know in the U.S. there are all sorts of opinions on different issues well think of the whole world ranging from very very poor individuals in poor countries to the what two wealthy individuals in wealthy countries but we're not talking about individuals we're talking about society as a whole so it's a very tough question to answer and the answer is clearly not zero since carbon dioxide and other greenhouse gases provide a lot of value to us we had to cut them off entirely we couldn't drive our car anywhere we really couldn't turn on our electric lights a long list of things so there's some balance in how much to reduce and then the second question is supposing we've answered that question which the world has not answered yet then how do you accomplish that reduction in other words how do you get people to reduce you just ask them politely or do you have some sort of law or incentive how do you how do you do it and not just people but organizations businesses of course respond to the profit motive but what about governments who don't really respond to it's not clear what they respond to they respond to public pressure sometimes but not always so how do you accomplish that reduction and how do we deal with uncertainty so those are the big questions and issues like in any research area within each one of these there are big problems that are components of the overall problem where a lot of people's research career focuses for instance on what is the damage from the change in climate anyway we'll we'll go through on some highlights of this so this is from the IPCC and big UN organization was designed to synthesize data on climate change what what this shows is is their best estimate of where we are going for the remainder of this century in the climate change arena so this is across the horizontal axis of course is the time to 2100 the vertical axis is annual emissions and we're basically have three different column scenarios possibilities for the future one that leads us to about four or five degrees c in the year 2100 and that's more or less the path we're on now business as usual as it's called and the bottom one the blue one is what it takes to get to about two degrees c and as some of you may be aware there was a big debate in in paris a few years ago about whether we should be going to one and a half degrees c as the increase in temperature over pre-industrial levels and it ended up being two degrees but a lot of people think two degrees from our point of view of 2020 is unattainable and one reason you can see is if you look at this graph note that to achieve two degrees c we have to have negative emissions in the latter part of the century negative emissions that means we take out more CO2 than we put into it which is so far so far from where we are today that it's that it's difficult to imagine that occurring but it could occur it could occur so let's first talk about the costs of viewing this as a lens where there are costs of action and there are costs of inaction costs of action these these these figures sort of show the nature of that going to smaller cars going to this is a little bit obsolete but you could tell that this is a compact fluorescent light bulb if I put up an LED bulb it would look pretty similar to an incandescent bulb using less energy there's also another thing you can do is insulate your house better these are these are all things we know reduce energy and energy is the flip side of climate change we produce carbon dioxide when we combust energy and then down on the bottom corner bottom left corner here we have a diagram of the sequestration process whereby we take the CO2 out of the smokestack out of the air and pump it underground and hope cross our fingers that it stays there for a million years which is a big finger crossing exercise it's unlikely that human species will be around in a million years so that's the cost of action all those things take take energy effort human effort and dollars and all of them reduce the emissions we generate costs of inaction is what happens if we don't act we also incur costs and there's a picture of a flooded city up here from a flood and just a diagram of one way of avoiding damage from the flood but it involves costs as well building a house that's above the flood level another cost is essentially drought denoting large areas of productive land that's a cost of inaction and then here we have a polar bear it's probably quite happy but the idea here is that the ice may disappear it's polar bear won't like and I always get a kick out of this adaptation diagram here the polar bear is painting his companion to be more like a panda so it doesn't have to deal with the ice as much so we have cost of action cost of and here we have other another slide a second slime only show two of them from the IPCC which essentially shows four scenarios the one on the far right is the two degree one 450 parts per million and the cost associated with doing it in 2030 2050 and 2100 and showing the cost in terms of a percent of world output so think think for this median here about five percent this is basically about five percent of your personal income think of it as that although it's national income now that's that's not a lot but it's uh it's a significant amount of money particularly for the people that have difficult time eating so we've got costs being estimated on both sides of the equation so this is just a this is a list of some more things that can be done to expenditures that can reduce emissions and the purpose of some of these items is to show that costs are not the kind of cost we normally think of you know go to the grocery store we buy a loaf of bread think of the cost as being the amount of money that it takes to exchange for that loaf of bread but here we have a lot broader sense of costs investments in fuel efficiency are the kinds of things we've all already talked about but suppose we talk about foregoing consumption suppose prices of products go up and some people can't afford to just continue to buy what they did before so they give up on buying certain things switch to lower costs of protein for instance reduce reductions in the quality of consumption right here this this means that if you have a family of four and you're forced to ride around in one of these guys spark cars you're not as it's not as comfortable the quality is not as great as if you're in a regular size car or the lighting is inferior there are there are a number of other costs that are all costs associated with climate change trying to fix the problem the cost of inaction this is the damage from letting the carbon run them up letting the greenhouse gases continue to rise is the other side of that coin and a lot of the world including the US from the Obama administration but it continues today is to synthesize everything in the social cost of carbon and this is basically defined as I what the costs are if we were to inject one metric ton of carbon dioxide emissions into the atmosphere today and then look at the marginal changes in all the negative and positive consequences that occur over the hundred or so years that ton remains in the in the atmosphere and what you get is something that looks like this you get a an increase as the ton is injected you start getting increase in damages temperature goes up a little bit not much but that's it's only one ton and you get it you get a lot of impacts early on and then they taper off now the reason one reason they taper off is that we're discounting the farthest in future and the discount rate you can see is a very important factor in the higher discount rate five percent per year the damages dissipate fairly quickly that doesn't mean they go anywhere that just means we don't care as much about what happens in the year 2200 the discount rate is sort of the opposite of the interest rates you get at the bank if the bank is paying you five percent you're going to get your money's going to grow a lot more quickly than if they pay you two and a half percent or even one percent but the flip side of that is that at a lower discount rate the future becomes more important and it magnifies the damage caused by that extra ton of carbon dioxide so so how how is the social cost of carbon actually used why is it important well in the u.s and many other countries every major regulation there are many small ones and efficiency standards for vending machine prompted this because before before the social cost of carbon carbon was omitted from the cost benefit analysis of regulations nowadays most recently the clean power plan the social cost of carbon is an important factor in weighing what regulation should be taken in fact those of you that follow the news know that the obama administration put through the clean power plan about five years ago and the trump administration has proposed essentially tossing it or greatly weakening it and it all all of the debate hinges on what the value is of the social cost of carbon so calculating the social cost of carbon this is where people have used models computer models of the economy and the atmosphere and the environment there are three main ones that the u.s government uses and the models will essentially allow you to inject an additional ton of carbon into the atmosphere and trace out the extra damages over the next few centuries these are these three models are fundamentally different approaches but it gives you an answer currently in the u.s social cost of carbon prior to trump is about 40 dollars a ton so the the u.s considered that each ton of carbon emitted is causing over the lifetime of that carbon in the atmosphere about 40 dollars of damage trump administration cut it to about three dollars and hence you get a different answer when you do a cost benefit analysis of something like the clean power plan there's also a lot of uncertainty this is a pdf not a portable document format but a probability density function for or actually most more like a frequency plot the same thing of the social cost of carbon this is the range in which the u.s government considers you can see it goes way out there's probability in fact that the social cost of carbon is quite high very high and also probability that's quite low okay so before we turn to a breakout session I want to just address the second big question in economics is how to get people in organizations to reduce their emissions it's not easy getting the u.s population let alone the world population to do anything it's it's very difficult to get people to do things voluntarily though they do it's also difficult to get to agree on what kind of regulations or government mandates are needed and there are really two approaches that we look at in considering how to get people to reduce emissions one is incentives where we don't tell them to do anything we just provide rewards for reducing emissions penalties for increasing emissions think for example california and the electric car we view electric cars as desirable for reducing CO2 emissions so we give a tax incentive substantial one for people to buy electric cars and of course there are many other examples of rewards or penalties associated with increasing emissions the second way to do it is what we call command and control that's essentially where we tell polluters what they can we cannot do automobile fuel efficiency mandates are an example of that where we say if you're going to sell a car in the united states this is what its fuel efficiency has to be no no no debate uh renewable portfolio standards are another one where we basically require electric utilities to use a certain fraction of their generation based on the renewables okay so that's a quick pass through these issues what i what i'd like to do now is have some breakout sessions i'm told this will work flawlessly and smoothly that will all go into sessions of four people or so and within those sessions essentially you can decide on one person to report back to the group at 915 but the questions i'd like you to ask in your group is to first of all these four bullets identify the nature of the emissions you as individuals are responsible for so directly is is pretty easy you know you drive you have a car and drive it around it uses gasoline that generates emissions when you push the switch on the wall to get electricity back somewhere in the uh who knows where uh pollution is probably being generated okay that's that you can talk about then there's also indirectly that's when you buy products that involve emissions and productions so for instance if you if you buy a phone the phone was made in probably in china and uh there was there were emissions associated with its manufacture uh if it's an apple phone there were emissions associated with the engineers in cupatino all of those things are attributable to the to the person that buys it um a big sensitive point for students who are paying stanford to enroll and stanford is that you actually are responsible for all of the emissions of stanford university because you are the customer and the product is your education so if you think of indirectly a lot of emissions so you're individually responsible responsible for coming through this indirect mechanism so discuss these things be as specific as possible then i want you to identify some incentives or rules or regulations that would encourage you to change your behavior be realistic think of yourself and whether how you would respond to that and what changes need to be mandated by the government uh yeah so john has a question about what are your thoughts on carbon text what's the most promising path in your view of how countries or even a collision can come together to agree on something like this well i i personally think this is an opinion uh that getting all of the countries of the world to agree to something is uh like having a love fest between trump and biden it's totally impossible to or it's very difficult to do in recent times country big countries have been going on their own which i think is much more effective there are only a half dozen countries that are responsible for most emissions the us china india brazil um the european union and if they unilaterally take action they don't need to have an agreement but it can be just as effective and maybe after that's working the next step would be to try to reach agreement problem with reaching agreement is that if you fail to reach agreement the status quo persists and we've seen over the last 30 years every year the nations of the world get together to try to reach an agreement and they fail to do it so basically the status quo is what you end up with um and there are a few more fellow follow-up questions on that um should we uh answer them right now or we should be supposed to end um 9 25 9 25 we let's take another one okay um so charl stone i had an additional question to john's what do you think is the right social cost of carbon figure um and how should we think about the right discount rate at in this context well i think the figure is highly uncertain but i think the obama administration did a very uh a rigorous job in determining what it was now that is about five years old so it's probably when it's updated and we'll have to wait for either 2021 or 2025 for that um when it's updated it may go up a bit but i think the important thing to remember is it's a probability distribution and there's chances that it's quite high chances that it's quite low and i think that uncertainty actually has a lot to say about how you how you approach regulating carbon so everyone is back so that's very efficient thank you everybody i'm sorry that uh uh everything went so quickly it's this um all of us are getting used to this zoom for for class classwork but i hope it was enough time to get some uh to make some progress so what i'm going to do is uh jenny is going to just pick um randomly one of the breakout groups and we'll just go through them and um spend i'd like to ask you to spend uh no more than 30 seconds or so talking about your findings on the on the two questions that were raised but before we get there there were two two questions in the chat which i had a chance to look at over these while you were in breakout sessions and let me just address those one interesting question is how do you choose between price incentives versus direct regulations and uh that's a terrific question and uh it's it turns out to be um it's the answer is not one is always better than the other economists like incentives although we much prefer to to let people do what they want just have the incentive structure so that they they do what we would like them to do the fact is that sometimes that's it's very complicated it's very difficult to manage an electric power grid for instance second to second using pure prices it's it's very difficult to get automobile manufacturers to design cars in a certain way so in in mostly a price incentive or a subsidy works well often you have to look at two factors one is the economic dimensions of it but the second is the political dimensions some some rules and incentives are easier to get through the legislature than others and ultimately everything we do and democracies anyway has to go through the legislature so it's a it's it's a much more complicated question than you think second question regards what is the appropriate social discount rate that's a great question um if you look at the section of the chapter that wrote in the IPCC the latest IPCC uh the consensus says that the social discount rate down around uh two percent is about right but there's uncertainty about it one to three percent something like that is about right but it's it's highly controversial it's not just um observationally derivable it also involves ethical dimensions which makes it tough so let's uh let's move on to uh try to get through as many breakout sessions as we can in the six minutes we've got left or whatever it is jenny you want to pick somebody sure i'm just using this random number generator on google and then uh we are going to go with team five so we discussed a variety of ways in which we contribute emissions including transportation electricity usage and um meat consumption we spoke we focused then specifically on the issue of transportation and discussed both the regulatory and incentive side of things on the regulatory front we discussed gas tax as well as a tax on individual car ownership to occur at the point of purchase generally we focused more on point source solutions rather than longitudinal solutions due to the difficulty of tracking mileage on the incentive side of things we discussed how to encourage alternate forms of transit that would be through things like congestion pricing for vehicles as well as you know municipalities subsidizing membership in bike share or other types of mass transit usage in addition to providing a good infrastructure for those alternative forms of transit that's terrific let me just comment that uh those those will all work taxes on gas tend to be the third rail of american politics in much the same way as speed limits on autobahns of the third rail in germany and one has to take that into account in structuring a way a path forward everybody loves the subsidy and the only problem there is you have to pay for something but those are great ideas thank you thank you very much thanks um i wrote another dice and then uh we have breakout room three that's charles daniella and louis yeah so um danielle louis and i tried mainly about uh meat consumption and the meat industry um and we discussed the concept that um it's probably hard to institute any outright bans on on forms of meat consumption but that leveraging essentially behavioral change through marketing like with the usda doing kind of food pyramid type recommendations and also potentially subsidizing the development of meat alternatives could be a viable path to have a kind of lower meat diets um yeah that's that's sort of what we got to you how's that worked for sugar uh i'm not exactly sure what what what actually what actually happened yeah we all know the sugar is not good for us but the amount of sugar consumed in the united states and europe is enormous right right right but but you have limited instruments it is is is a good point i mean one other way of doing it is to generate substitutes which is seems to be taking off like impossible foods based here in redwood city and beyond beef where you don't try to change behavior you try to make it easy to be a good citizen but that you know that's a toughie a lot of people say make the world a vegetarian uh that's that's hard to do and um so thinking of ways to do it levers that you have uh is is obviously the right way to think through the problem tough problem very tough thank you thank you very much um chas we only have one minute would you like to close um sure anybody have any let me just when anybody like to raise their hand if they have a really pressing thing they'd like to contribute to the to the group okay well i'll raise my hand so this is this is i wish we had more time because i think you're through through the chat and through the through the comments we've had you're obviously many of you have thought a lot about this and deeply it's not a superficial so it would be terrific to have more discussion but let me just say since you're all i think you're all phd students or graduate students anyway um really structure your research program and your educational program here at stanford so that you're actually able to contribute to solutions to this you're going to have to pick a little tiny corner of the problem and devote your research skills to it pick something that's important and something that interests you and you can make a terrific contribution to the future of the world that's probably the most effective way any of us here today can can operate thank you very much