Homer Alaska - Business

Some politicians have questioned adapting to global climate change, saying that it's not necessary to respond to impacts, or that responses to climate change will have negative economic impacts. Colt said the cost of doing nothing is not zero and could be quite expensive. He cited a study by Lord Stern that the lost economic output from not responding to climate change could be as high as 5 percent of the global gross domestic product or between $3 and $12 trillion a year.

In Alaska, according to an ISER study, repairing or building new infrastructure damaged by climate change, such as coastal erosion, could be from $4 to $12 billion, Colt said.

Alaska's environment also has economic value in regulating carbon production, Colt said. The arctic helps cool the earth through reflecting heat off snow and ice. Permafrost also keeps methane, a greenhouse gas, locked into the soil. If the arctic warms, the economic value lost could be $61 billion a year or more, Colt said.

One problem with addressing global climate change is the uncertainty of what will happen. Uncertainty is harder to manage than risks, Colt said.

"Risk is when you know the odds," he said. "Uncertainty is when we do not know the odds."

Responding to uncertainty is like buying insurance, Colt said. Insurance is bought to deal with worst-case scenarios.

"It's better to view mitigation and adaptation as an insurance policy designed to head off the worst," Colt said.

One way to mitigate climate change is to reduce greenhouse gas emissions, especially CO2. Two approaches have been suggested: cap-and-trade and a straight carbon tax.

With cap-and-trade, CO2 producers are given a permit to emit up to a certain cap on CO2. Producers that emit less can trade unused amounts to producers who emit more. The marketplace would create a price for carbon emission. The problem with cap-and-trade is that politicians might tinker with the permitting process, Colt said.

"We just might end up printing permits under political pressure," he said.

A straight tax on carbon is better, Colt said.

"With a tax, you're more likely to have an effect on behavior," he said. "It's up front. It's transparent. That's why economists like a carbon tax."

A carbon tax has obvious costs. For Alaskans, it would mean higher energy bills. A tax of $100 on a ton of carbon emitted would mean an increase of $1 a gallon on gasoline — significant, but not outside the range of price fluctuation Alaskans have experienced before. That tax would raise electric rates 3.5 cents a kilowatt hour if the power was 100 percent generated by natural gas, he said. Colt pointed out most carbon tax proposals in Congress have been taxes of $20 to $30 a ton of carbon emitted.

A carbon tax could have a benefit in North Slope gas value. Under one study, such a tax would increase the wellhead value of natural gas by $4 to 9 billion a year, and increase state revenues by $1 to 2.2 billion a year. Natural gas has 55 percent the CO2 of coal.

"It's making Alaska natural gas look really good," Colt said of a carbon tax.

Carbon taxes also could stimulate clean energy research and development, such as wind, solar and tidal energy — and lead to unknown scientific innovation.

"Over the long run, what produces economic growth?" Colt asked. "The answer: technological progress."

Technological progress is hard to predict, but history is full of examples where some innovation has dramatically changed society.

"We're going to do things in ways we can't possibly imagine," Colt said.

A carbon tax won't be painless, Colt said, but in the larger picture, it benefits Alaskans.

"The price of carbon is your friend," he said.

Michael Armstrong can be reached at michael.armstrong.@homernews.com.