WASHINGTON – Say you're buying a new home. Better insulated window treatments could help your energy bill, but also drive up the price of the house. If government stepped in and greased the economic wheels, personal budgets would look healthier and the environment would be better off.
Or say you're a corporate executive thinking about shelling out for greener equipment. Need cash? One day you might be able to borrow against the money you'll save from the more efficient equipment.
That is part of the message brought to the United States Tuesday by Sir Nicholas Stern, an economist taking a global tour to promote his recent report for the British government, "The Stern Review: The Economics of Climate Change."
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Stern and two American economists testified before the Senate Energy and Natural Resources Committee on Tuesday, stumping for a host of policy reforms that they say could head off the predicted effects of greenhouse gases, including rising sea levels, declining drinking and agricultural water tables, increasingly dangerous storms and more disease.
The key to unlocking the climate change problem is lowering the greenhouse gas levels and amount of emissions pumped into the air, Stern said in an interview after the hearing. And the way to encourage that is through wallet-size incentives.
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"It takes time for the effects [of the gases] to come through, and that means the things we do now — how much of these greenhouse gases we emit — affect what happens far into the future. So even though we can't see the effects right now, what we're doing is having a big impact on what will happen much further down the track," Stern said.
And, he added, if nothing's done, "It will make life very difficult not only for ourselves but for people right across the world."
Stern's review focuses on trying to rein in greenhouse gas levels by 2050 so they are about 30 percent higher than scientists say they are now. With the increase, climatologists' models say the Earth's temperatures would still rise by about 3.6-5.4 degrees Fahrenheit. Under business as usual, Stern predicts average global temperatures will rise by 9 degrees by the end of the century. That's uncharted territory for humans, he said.
The report predicts it will cost about 1 percent of annual global production to cover the costs of reaching the 2050 target emissions rate. At that rate, if the world began paying for the climate change problem today, it would cost somewhere between $400 billion and $500 billion this year alone.
While that would be a sizable chunk of say, the U.S. federal budget, spread among individuals, around the world, it's not so bad, Stern said. It would amount to a one-time, 1 percent increase in the yearly inflation rate.
"That's the kind of thing we can cope with, and it's much smaller than the cost of doing nothing and waiting for all these effects to come through and then of course not being able to deal with them, because once the gas is up, then you can't get them out," Stern said.
Lawmakers are already trying to find ways to make it appealing for companies to be more environmentally conscious.
Sen. Jeff Bingaman, who chairs the panel that held Tuesday's hearing, is working on legislation that would set up a national cap-and-trade system for carbon pricing. Generally, power plants could buy rights through a permit system to emit greenhouse gases, and the government would cap the total amount of gases that could be emitted for the period of the permit.
Power generators that do not use up all of their emissions could then sell the rights to other plants that might have spent their total emissions. Some voluntary systems like this are being developed around the country, and Europe has instituted a network.
Stern told the panel that a cap-and-trade system is something that is more likely to get broad, international support. Unlike the Kyoto Protocol — which was a single treaty to which nations agreed to join to — individual nations could develop their own systems and could trade across borders. Europeans could participate in American markets, Americans could participate in Asian markets and so on.
Stern also recommended incentives that would sweeten the deal for businesses and individuals to clean up their acts. For instance, he said the European Bank for Reconstruction and Development has been working in former Soviet-bloc countries to lend companies money based on the amount of cash flow expected from new efficiency improvements. Stern said this is something that could be brought to the United States.
Big companies might already have the resources to make the switch even if they don't want to, "but it's some of the smaller companies, households, that may not find that so easy," Stern said in the interview.
But before setting a policy for drawing down the gases, it might be more important to deal with rising problems, said Sen. Pete Domenici of New Mexico, the highest ranked Republican on the committee. He said research is lacking on efforts to capture greenhouse gases and store them before they are released into the atmosphere.
"There has to be some way to get all of the countries of the world to put in literally billions of dollars in some major research effort, and decide whether sequestration and return of that carbon is doable," Domenici said.
The other fallback method for paying for cuts in emissions could wither on the vine. Massachusetts Institute of Technology professor Henry Jacoby said a carbon tax not only would allow regulators to set the real price of carbon, but the revenues could be turned around and used to pay for adaptation, research, carbon trapping and any number of other things.
"It would be nice if taxes weren't so taboo," he said.
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