Climate ChangeScience, Economics, and Policy

Climate Economics

I. Climate Change Research

II. Climate Change Economics

III. Expert Opinion

IV. Climate Surprises & Adaptation

V. The IPCC and Policy Evolution

I. Climate Change Research

Good science in economic models “From Ecology to Economics: The Case Against

CO2 Fertilization,” Ecological Economics, 1993.

“Carbon Dioxide Effects on Plants: Uncertainties and Implications for Modeling Crop Response to Climate Change,” Agricultural Dimensions of Global Climate Change, St. Lucie Press, 1993. (w/ D. Wolfe)

Climate change policy and international realism

 

“The Inefficiency and Unfairness of Tradable CO2 Permits,” World Resource Review, 1993.

The role of energy technology

“Photovoltaic Technology: Markets, Economics, and Development,” World Development, 1995. (w/ D. Chapman)

I. Climate Change Research

Technology evolution: R&D vs. Export markets

 “Residential Rural Solar Electricity in Developing

Countries,” Contemporary Economic Policy, 1995. (w/ D. Chapman)

“Solar Power and Climate Change Policy in Developing Countries,” Energy Policy, 1996. (w/ T. Drennen, D. Chapman)

“Technological Learning and Renewable Energy Costs: Implications for U.S. Energy Policy,” Energy Policy, 2006. (w/ P. Kobos, T. Drennen)

I. Climate Change Research

The China factor  “Who Will Fuel China?,” Science, 1998. (w/ T.

Drennen)

“Scenario Analysis of Chinese Passenger Vehicle Growth,” Contemporary Economic Policy, 2003. (w/ P. Kobos & T. Drennen)

I. Climate Change Research

The Kyoto protocol and production-based standards

 “International Trade and Carbon Embodiment:

Loophole in the Kyoto Protocol,” 19th Annual North American Conference of the International Association for Energy Economics, Albuquerque, NM, Oct. 18-21, 1998 (w/ M. Zhang, T. Drennen)

I. Climate Change Research

Abatement vs. adaptation in a stochastic world

 “The Future of Economics in the Century of the

Environment,” Indian Journal of Applied Economics, 2002.

“Incorporating Catastrophes into Integrated Assessment: Science, Impacts, and Adaptation,” Climatic Change, 2003 (w/ E. Wright)

“Climate Variability, Economic Adaptation, and Investment Timing,” International J. of Global Env. Issues, 2003 (w/ E. Wright)

I. Climate Change Research

II. Climate Change Economics

A. Development

1983: National Academy of Science “CO2 Assessment Committee”

1991: “Sketch of the Economics of the Greenhouse Effect” & “To Slow or Not to Slow”

1992: “An Optimal Transition Path for Controlling Greenhouse Gases”

1994: Managing the Global Commons: the Economics of Climate Change (MIT Press)

1995 – present: Regional version of DICE; countless spin-offs to the Nordhaus framework.

~ Nordhaus DICE Model ~

“Considering the relatively short history of integrated assessment ofclimate, a surprising amount of knowledge has emerged. Probablythe most striking result is that our current understanding of thedamage of climate change does not justify more than modestemissions control.” - Kolstad, 1998

II. Climate Change Economics

B. Basic Structure (DICE)

1. Global macroeconomy represented by aggregate gross world output

2. Climate change impacts gross output production

3. Objective is to maximize the discounted value of world utility

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II. Climate Change Economics

B. Basic Structure

Production

Emissions

GHG Concentration

Global average temperature change

Damage to gross output from both control expenditures and

climate change costs

II. Climate Change EconomicsC. Technological Advance

i. Estimates 1.3% per year 1960 - 1989

ii. In future, gradually declines to 1%

iii. In 100 years, today’s K and L could product 227% more outputi. Declines independently at 1.25% / year

ii. In 100 years, a dollar of gross world product will emit only 28% of today’s CO2

1. General technological progress

2. Declining carbon intensity

3. Interaction of (1) and (2)

i. In 100 years, a given amount of capital and labor will have 35% less emissions with 2.27 times more output.

II. Climate Change Economics

D. Policy Experiments

Impact of Program

(percent difference)

No Controls Policy 0.000

Optimal Policy 0.027

Stabilize Emissions -0.706

Stabilize Climate -4.091

Geoengineering 0.559

II. Climate Change EconomicsE. Conclusions from the Economics of Climate

Change

“ . . . a massive effort to slow climate change today would be premature given current understanding of the damages imposed by greenhouse warming.”

- Nordhaus (1994, p.6)

1. Optimal control is relatively small

2. More aggressive control policies have negative net benefits

3. IPCC and science community is not behaving rationally.

Are Scientists and Policy-Makers Behaving Irrationally?

• Over 1500 scientists, including 104 out of 178 living nobel laureates, signed the World Call for Action initiated by the Union of Concerned Scientists at Kyoto, Japan in the Fall of 1997.

• Over 160 countries negotiated the Kyoto Protocol, committing 35 countries to reduce GHG emissions to 5.2% below 1990 levels by 2008-2012

III. Expert Opinion

• Mainstream economist v. environmental economists

• Damage functions by discipline• Probability distribution of expert

opinion

Monte Carlo Simulation v. DICE Model (Roughgarden and Schneider)

Data Source

Total Discounted Consumption

(trillions of 1990 US $)

Optimal Carbon Tax

(1990 US $ per ton)

1995 2055 2105

DICE* 730.92 5.24 15.04 21.73

Median 699.99 21.91 46.91 61.28

Mean 680.99 41.89 86.58 111.04

Tail

(95th)

508.97 179.39 348.37 465.44

. . . the significant chance of a “surprise” causes a relatively high level of optimal abatement.

- Roughgarden & Schneider

Climate Surprises & Adaptation

• Ocean currents• Ice caps and freshwater inputs• Storm frequency and severity• Natural positive feedback loops• Economic positive feedback loops

IPCC and Policy Evolution• IPCC established by WMO and UNEP, 1988

Three working groups (science, adaptation, mitigation)• First Assessment of the IPCC, 1990

UN Framework Convention on Climate Change, 1992• Second Assessment of the IPCC, 1995

“. . . balance of evidence suggests . . .” Kyoto Protocol to the UNFCC, 1997

• Special Report: The Regional Impacts of Climate Change - An Assessment of Vulnerability, 1997

• Third Assessment of the IPCC, 2001 ????