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Implications for NJ Seen in U.S. Study on Costs of Climate Change

With Christie veto, NJ bows out of greenhouse gas initiative that study concludes has economic benefits.

Is the federal government significantly underestimating the costs of climate change?

A new study in the Journal of Environmental Studies and Scientists argues it is because it is relying on a faulty analytical model to account for the economic changes that climate change will inflict on future generations.

“This is a wake-up call for America to start aggressively investing in low carbon sources of energy,” said Laurie Johnson, chief economist in the climate and clean air program at the Natural Resources Defense Council, and a co-author of the study. “The very real economic benefits will accrue quickly and increase over time.”

The report may have implications for New Jersey, where the debate over climate change and what to do about it has intensified ever since Gov. Chris Christie pulled New Jersey out of a regional initiative to deal with global warming by reducing pollution from power plants.

In July, he vetoed a bill passed by the Democratic-controlled Legislature to force New Jersey to rejoin the 10-state program, called the Regional Greenhouse Gas Initiative. The Republican governor called the program ineffective and nothing but a tax on overburdened utility ratepayers.

In his veto message, Christie noted the state already has lowered New Jersey’s carbon emissions below the limits established by a previous law passed by the Legislature. Skeptics say those reductions are more a result of a severe economic slowdown brought about by a recession.

While the pull out of the initiative has been lambasted by clean energy advocates and Democrats, the move was welcomed by some conservative groups, including Americans For Prosperity, which mounted a campaign to end New Jersey’s participation. A spokesman did not respond to a request for comment late yesterday.

The regional initiative, begun in 2005, requires power plants to pay a surcharge on greenhouse gas emissions that contribute to climate change. Those costs, passed on to electric customers, are used to fund energy programs, such as energy efficiency projects and cleaner ways of producing electricity.

Johnson argued such programs are needed to reduce the nation’s reliance on conventional power plants. With approximately 40 percent of all carbon emissions in the U.S. from power plants, the economic advantages of clean electricity sources are significant, she said.

The real benefits of reducing greenhouse gas emissions range from 2.6 times to more than 12 times higher than the government’s estimate, according to the study, “The Social Cost of Carbon in U.S. Regulatory Impact Analyses,” which was co-authored by Chris Hope of the University of Cambridge, Judge Business School.

“It turns out that the price we now pay for energy is much higher than what shows up on our electric bills or the tab at the gas pump,” Johnson said.

In the study, the authors argue the government’s model is flawed because it reduces economic costs imposed on future generations.

“The difference in the government’s estimate and our own boils down to one factor: the ‘discount rate,’ " Johnson wrote in a blog. "While it’s easy to get lost in economic jargon and the mathematics, here is what the discount rate does: it assumes that a dollar today is more valuable than one received in the future. Hence, when applied to anticipated damages resulting from climate change, it lowers the economic costs we will assume will be inflicted on future generations.”

Without properly accounting for pollution costs, natural gas appears to be the cheapest generation option for new plants, according to the study. But Johnson wrote in her blog, the revised estimates show, after incorporating the economic costs of carbon and other pollutants from fossil fuel generation, building new generation using wind and solar power would be more cost effective than either natural gas or coal.

The Christie administration has repeatedly said it wants to build no new coal plants in the state, but has implemented a contentious effort to build two new natural gas plants with potentially huge subsidies from electric customers. The administration also is pushing aggressive efforts to expand solar energy in the state as well as to develop more than 1,000 megawatts of offshore wind farms, although the latter effort has stalled in recent months.

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