Use of empirically-based models to evaluate the potential of energy efficiency and forest carbon sequestration for mitigating climate change

Disagreement over the costs of actions to address climate change is a barrier to implementing effective policies. In this thesis, I focus on two particularly controversial actions: accelerating natural rates of improvement in energy efficiency and increasing carbon sequestration in forests. Analysts using what is known as the conventional bottom-up approach find that each of these actions can achieve substantial mitigation of greenhouse gas emissions at low costs. The prospect of combining low-cost actions with politically feasible policies, such as subsidies and information programs, is particularly enticing for policy-makers. However, actions that appear to be cost-effective based on conventional bottom-up calculations are not necessarily widely adopted – in the energy efficiency literature, this is referred to as the energy efficiency “gap”. There are two serious problems associated with the conventional bottom-up methodology. First, conventional bottom-up analysis ignores important aspects of human behavior and therefore does not take into account some of the real costs associated with actions. This explains to some degree the “gap” described above. Second, key feedback effects within the economy are not represented in bottom-up models. The energy efficiency “rebound effect” and the analogous phenomenon of “leakage” in forest carbon sequestration each reduce the initial effectiveness of the action in question. As a result of these deficiencies, conventional bottom-up models are likely to underestimate the cost of the actions in question and suggest inappropriate policy responses to rising carbon dioxide concentrations in the atmosphere. In the three papers comprising my PhD thesis, I develop and apply new models to test the findings of the bottom-up approach. These models incorporate empirically estimated behavioral parameters and have the capability to (where necessary) take into account feedback effects within the economy. My research suggests that neither energy efficiency nor forest carbon sequestration is the “magic bullet” against climate change. Subsidy programs designed to achieve these actions – including subsidies in the form of offsets – would require large public expenditures, especially due to free-rider problems. To successfully meet the challenge of climate change, policy-makers must implement broad-based policies that impose a substantial financial or regulatory constraint on greenhouse gas emissions.