Transcript CanadaWater – A Tool for Modeling Canadian Water Resources

The Impact of Climate Change and
Climate Policy on the Canadian
Economy
Jim Davies
Jim MacGee
Jacob Wibe
Questions
●
What is the net economic impact of climate change
and global climate change policy on the Canadian
economy?


●
Costs and benefits from different emissions reduction
targets
Implications of migration and population growth
Canada is different:
1.
2.
3.
More energy intensive than OECD average
High immigration
Northern climate
Modeling Approach
●
Adopt Nordhaus’ DICE Model (2007)
●
Model Canada as a small open economy
●
Take as given



World path of carbon emissions
Climate
Relative price of carbon energy
Main Findings
●
●
●
Benchmark calibration: Reducing CO2 emissions
in Canada more costly than Nordhaus (2007)
world average
Canadian immigration policy increases world
output but raises Canadian abatement cost
Contribution: Dynamic model to compare
alternate CO2 emission time paths
Selected Literature: Canada
●
Static CGE models used to examine impacts of
climate policy on Canada:

●
Hamilton and Cameron (1994), Jaccard and Montgomery (1996), ab
Iorwerth et al. (2000), Dissou (2005), Wigle and Snoddon (2007),
Boehringer and Rutherford (2008)
Sectoral models:

Jaccard and Montgomery (1996), Jaccard et al. (2000), Loulou et al.
(2000) Jaccard and Rivers (2007)
DICE-2007
●
●
●
●
Dynamic Integrated model of Climate and Economy
Neoclassical Growth Model – Maximize a Social
Welfare Function for the World
Consumption constrained by economic and
geophysical relationships
Decision variables: Savings rate for capital and
emissions-control rate
Production
●
DICE functional forms assumed
●
Parameters differ for Canada:
1.
2.
Damage coefficient: Ωt
Abatement cost function: Λt
 1
Qt  t [1  t ]At Kt Lt
Abatement Cost Function: Λt
●
Cost of controlling GHG emissions

●
μ = % reduction in industrial emissions
Calibrate to two points:


Nordhaus (2007) backstop price schedule
NRTEE (2009):


3.3% GDP in 2020 to reduce emissions to 31% below BAU
4.8% GDP in 2050 to 78% below BAU
2
t   1,t t
Canadian Abatement Costs
●
Alternative estimates of abatement costs:

Dissou (2005): $15.4 billion (1.15% of GDP) to reach
Kyoto target in 2010

Jaccard et al (2003): $45 billion to reach Kyoto target in
2010 (cumulative costs 2000-2022)
Abatement Cost Function for
Canada
0.14
0.12
Share of Output
0.1
0.08
Canada 2020
DICE 2020
0.06
0.04
0.02
0
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Share of Controlled Emissions
Damage coefficient: Ωt
●
●
Nordhaus (2007) models damages as quadratic
in global mean temperature
Calibrate:


Use regional damage estimates for U.S. from
Mendelsohn (2001)
Fit quadratic using estimated damage at T=2.5° and
T=5 °
1
t 
,
1  Dt
Dt  1,tTt  2,tTt 2
Matching Regions
Canadian
Region
U.S. Region
(Mendelsohn)
Atlantic
North-East
Quebec
North-East
Ontario
North-East,
Mid-West
Prairies
Northern Plains
B.C.
Pacific North-West
Damage Function, Dt
0.5
0.4
Share of Output
0.3
0.2
DICE
0.1
Canada
0.0
0
-0.1
-0.2
-0.3
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
Degrees C°
Benefits to Canada from
Reduced Global Warming?
Canadian
Policy
Global Policy
BAU
Nordhaus
Fast&Deep
BAU
Abatement
Damages
Total
5.9
-56.8
-50.9
5.9
-59.1
-53.2
5.9
-56.6
-50.7
Nordhaus
Abatement
Damages
Total
351.1
-56.8
294.3
351.1
-59.1
292.0
350. 6
-56.6
294.0
Fast&Deep
Abatement
Damages
Total
1096.8
-56.8
1040.0
1097.0
-59.1
1037.9
1094.2
-56.6
1037.6
NPV 2005 - 2095, billions of dollars.
Policy Question
●
Should immigrant receiving countries receive
additional “emission credits” if they accept
immigrants from countries worst hit by global
warming?
Impacts on Canada from
Immigration
Immigration Path
Change in ..
Low
Medium
High
Gross Output
4862.6
5985.8
7345.8
Climate Damage
- 6.3
-7.9
-9.7
Abatement Cost
42.3
52.4
64.8
NPV 2005 - 2095, billions of dollars.
Conclusions
●
Global climate change policy has a
significant impact on Canadian Economy


High abatement costs associated with
optimal global policy
Global abatement effort is of little benefit to
Canada in economic terms
Conclusions
●
Canadian Immigration policy
increases world output but raises
Canadian abatement cost

Immigration increases economic burden on
Canada in meeting emission targets
Abatement Cost Function: Λt
Nordhaus Global Abatement Cost Function
0.06
Share of World Output
0.05
0.04
2005
0.03
2055
0.02
0.01
0
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Share of Controlled Emissions
Mendelsohn’s Regions