Transcript Slide 1

Economics of Climate Change:
Impacts
Economics 331b
Spring 2011
1
Agenda
This week: Impacts
Week 10: Mitigation
Week 11: Discounting and optimal policies
Week 12: Alternative policies ?
Week 13: International agreements ?
2
Basics of impacts analysis
Consumption
C=F(K,L,A,T)
Impacts or
damages
C=F(K,L,A,T’)
Time
4
Impacts Analysis
Impacts are the reason we care about climate change.
Major areas of concern:
•
•
market economy (agriculture, manufacturing, housing, …)
non-market sectors (health, recreation, …)
•
non-human systems (ecosystems, species, oceans, …)
5
What is climate?
Consider the complex system as a stochastic process:
dx(t)/dt = h[x(t); α, ρ, …]
x(t) is temperature, precipitation, ocean currents, etc. α, ρ,
etc. are parameters.
Weather is the realization of this process.
Climate is the statistics of the process (mean, higher
moments, extremes). It is usually calculated as moving
averages (e.g., 30-year “normals”).
6
Basics of Impact Analysis
1. Start with a production function:
Q j,t = F(K j,t ; W j,t , T j,t), t in future, j sector.
where Q j,t = output; K j,t = capital and other conventional inputs; W j,t =
weather (realization); T j,t = climate
2. We often have data on the impact of weather changes , ∂Q j,t /∂Wj,t.
3. But, we need to understand climate impacts, ∂Q j,t /∂ T j,t
4. “Climate” is really a vector of important climatic variables
(temperature, precipitation, soil moisture, snow pack, …), often at
detailed geophysical resolution.
5. Impacts analysis requires estimating the production function in the
distant future, at which time the impacts will occur.
6. Finally, we need to discount back the impacts to the present.
7
Shares of economy by vulnerability, US
Share of total national income in sector
Sector by impact
1948
1973
2007
9.3
8.2
1.1
3.9
3.4
0.6
1.1
0.8
0.2
Moderately impacted sectors
Real estate (coastal)
Transportation
Construction
Utilities
11.7
0.2
6.0
4.2
1.4
11.1
0.2
3.9
5.0
2.0
9.7
0.3
2.9
4.4
2.0
Lightly or negligibly impacted sectors
79.1
85.0
89.3
4.9
2.8
6.9
1.4
8.5
2.0
13.3
12.7
6.4
9.0
0.1
2.6
2.4
0.6
18.1
11.1
13.4
8.5
6.7
7.8
0.2
3.4
4.0
0.8
24.2
14.6
6.7
5.0
5.8
6.5
0.3
4.2
7.9
1.0
37.2
12.6
100.0
100.0
100.0
Heavily impacted sectors
Farming
Forestry, fishing
Real estate (non-coastal)
Mining
Manufacturing
Durable goods
Nondurable goods
Wholesale trade
Retail trade
Warehousing and storage
Information
Finance and insurance
Rental and leasing services
Services and residual
Government
TOTAL
8
Some important sectors or issues
-
Agriculture
Sea-level rise
Hurricanes
National security
Ocean acidification
Species losses
Health
Tipping points and singularities
9
Example from Agriculture
Long history of agricultural production functions in which
weather is a variable. Remember:
Q j,t = F(Kj,t ; W j,t )
This produced first set of estimates of impact of global
warming; led to very large estimates of losses.
10
Diagram used to show disastrous effects of
climate change
Why is this
completely
wrong for
understanding
the impact of
climate change
on agriculture?
11
Example from Agriculture
Long history of agricultural production functions in which
weather is a variable.
- This produced first set of estimates of impact of global
warming; led to very large estimates of losses.
Problem: The temperature-output relationship does not
take into account adaptation of farmers to climate.
This is the “dumb farmer” v. “smart farmer” controversy.
Ricardian methods are attempt to look at equilibrium effect
of climate by looking at cross-sectional impact of climate
on farm values (Mendelsohn key figure here)
- This produced much smaller estimates because of farmer
adaptation.
12
Short-run
v.
long-run productivity
13
The tricky issue of declining share of agriculture
50
45
High income
East Asia
Latin America
South Asia
Sub-Saharan Africa
Share of agriculture in GDP (%)
40
35
30
25
20
15
10
5
0
1965
1970
1975
1980
1985
1990
1995
2000
2005
14
Can there be “negative damages”?
15
Summary of studies on Rice from IPCC
IPCC, Fourth Report, Impacts, p. 286. “Responses include cases without
adaptation (red dots) and with adaptation (dark green dots). Adaptations+
represented in these studies include changes in planting, changes in cultivar,
and shifts from rain-fed to irrigated conditions”
16
Agenda for today
1.
2.
3.
4.
5.
Finish agriculture
Calculation of marginal damages
Sea-level rise
Return to adaptation
Summary of damages
17
Estimates of Impacts on Agriculture late in the 21st C
Impacts on net value of agriculture as percent of national or
global income:
Mendelsohn
Cline
North American
+ 0.4 %
+ 0.5 %
Africa
- 5.0 %
- 4.0 %
Global average
- 0.2 %
- 0.1 to -.05%
Estimated effect of ag on output is small because (1)
agriculture is small, (2) farmers can adapt, (3) CO2 is a
fertilizer.
Source: Mendelsohn et al.; Cline
18
Price of carbon emissions
The basic analytical structure
Marginal Damages
Marginal Cost
Pcarbon*
0
Market!
Abatement*
Abatement
19
Where does the marginal damage function come from?
1. Recall that we estimate the damage function:
Dt = D(ΔTt ) = f(Kt , Lt , At ; Tt +ΔTt ) - f(Kt , Lt , At ; Tt)
2. We also relate temperature change to past emissions
Δ Tt = g( E0 , E1 , E2 , … , Et )
3. From which we get the marginal damage function .

S C C t = M D t =  [P V (D t )] /  E t =  [

D ve
 rv
] / E t
v= t
The marginal damage is sometimes called “social cost of carbon, SCC,
which you will calculate soon.
20
Global Warming and Sea Level Rise (SLR)
Major variations in geological history (-150 to +40 meters)
Sources in future:
- Thermal expansion (up to 2 meters in next 500 years)
- Small glaciers (0.5 meters)
- Greenland (up to 6 meters)
- Antarctic (56 meters), but major unstable is West
Antarctic Ice Sheet (7 meters)
- Arctic Sheet (very likely to disappear, 0 meters)
Major issues are stability and irreversibility
21
Observed Sea Level Rise (SLR)
18 cm rise since 1900
Current rate:
3.3 cm per decade
Rahmstorf, Cazenave, Church, Hansen, Keeling, Parker and Somerville (Science 2007)
22
WBGU
Data:
Church and White (2006)
Scenarios 2100:
50 – 140 cm (Rahmstorf 2007)
55 – 110 cm (“high end”, Delta Committee 2008)
Scenarios 2200:
150 – 350 cm (“high end”, Delta Committee 2008)
Scenarios 2300:
250 – 510 cm (German Advisory Council on
Global Change, WBGU, 2006)
Delta Comm.
Recent Global Sea Level Rise (SLR) Estimates
23
Rahmstorf at http://www.ozean-klima.de/
Impact of SLR on New Haven
SLR = 0 meters
http://flood.firetree.net/
Econ 331
24
SLR = 3 meters
25
SLR = 9 meters
26
SLR = 13 meters
27
Adaptation again as applied to SLR
Suppose that the capital stock is:
10% irreplaceable treasures (art, rare books, …)
30% structures (lifetime ~ 100 yrs.)
30% mobile equipment like planes and cars (lifetime ~ 10 yrs.)
30% short-lived equipment like computers (lifetime ~ 2 yrs.)
Now consider adaptation in terms of a warning time for a 7-meter SLR:
Tsunami (30 minutes)
Asteroid (20 years)
Global warming (200 years)
What would you do (say for Yale) with each warning time?
28
National Academy Report on Abrupt Climate Change
“Illustration of difference between impacts with and without adaptation. The
upper line shows the impact of climate change with full adaptation where
farmers can change crops and irrigate…. The lower line shows the impacts
without adaptation, as is likely to occur with abrupt climate change. Note that …
the costs are likely to be lower with adaptation. We have also shown a break in
the no-adaptation line to reflect the potential for sharp threshold effects, such as
those due to floods or fire.” (National Academy, Abrupt Climate Change, 2002.)
Central message
For adaptive systems, need to consider adaptations to
climate change (farmers, skiers, swimmers, trees, coral
reefs, …)
But must consider the costs of adaptation as one of the costs
of climate change (costs of moving, snowmaking
machinery, new crops, …)
30
First Generation Estimates of Aggregate
Monetized Damages of CO2 Doubling, U.S., for
present economy
Source: IPCC, Second Assessment Report
31
32
Damage summary from Tol survey: global
6
Damages as percent of output
5
Dots
from
Tol survey
4
IPCC
estimate
3
2
1
0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
-1
-2
-3
Global mean temperature increase (°C)
33
Damage summary: global
6
Dots
from
Tol survey
Damages as percent of output
5
4
Line is Yale
DICE/RICE
model
3
2
1
0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
-1
-2
-3
Global mean temperature increase (°C)
34
Summary of Impacts Estimates
Early studies contained a major surprise:
Modest impacts for gradual climate change, market impacts, highincome economies, next 50-100 years:
- Impact about 0 (+ 2) percent of output.
- Further studies confirmed this general result.
BUT, outside of this narrow finding, potential for big problems:
- many subtle thresholds and tipping elements
- abrupt climate change (“inevitable surprises”)
- many ecological disruptions (ocean carbonization, species loss, forest
wildfires, loss of terrestrial glaciers, snow packs, …)
- stress to small, topical, developing countries
- gradual coastal inundation of 1 – 10 meters over 1-5 centuries
35